Growing trade deficit with China

• Context (TH): China’s share of India’s industrial goods imports has risen from 21% to 30% over 15 years, according to a report by the Global Trade Research Initiative (GTRI).
• GTRI defined industrial goods by excluding agriculture, minerals, petroleum and jewellery products.
• India’s imports from China crossed $101 billion in 2023-24 from about $70 billion in 2018-19.
• Goods imports from China have risen 2.3 times faster than India’s total imports over 15 years.
• China is the top supplier in eight major industrial sectors, including machinery, chemicals, pharmaceuticals, and textiles.
• It is contrary to popular perception that Chinese imports are high only in the electronics sector.

China’s share in India’s imports

• India’s total merchandise imports stood at $677.2 billion in 2023-24, of which 15%, or $101.8 billion, were sourced from China.
• Iron, steel, and base metal imports showed a lower dependence on China, with just a 17.6% share of inflows coming from the neighbouring nation.
• Half of the imports from China consist of capital goods and machinery, indicating a critical need for focused research and development in this area.
• Intermediate goods like organic chemicals, Active Pharmaceutical Ingredients, and plastics, which represent 37% of imports, show a pressing need for upgrading these industries.
• In 2005, India exported $10 billion worth of goods to China and enjoyed a trade surplus with its neighbour between 2003 and 2005.
• After 2005, Chinese goods dominated trade flows, steadily magnifying the trade deficit for India.

Reasons behind the trade deficit

• A narrow basket of commodities, mostly primary, that India exports to China.
• Market access impediments for most Indian agricultural products and the competitive sectors, such as pharmaceuticals, IT/ITES, etc.
• The domestic industry, especially in the pharmaceutical sector, opposes the removal of concessions on customs duties from China. The solar energy and toy industries also opposed similar moves.
• Even the Production-Linked Incentive (PLI) scheme may have a significant Chinese presence with Chinese supply chain partners and service providers.

Strategic Implications

• Implications are ‘profound’ and affect not only economic but national security dimensions.
• Stimulating domestic industries and reducing dependency on single-country imports, especially from a geopolitical competitor like China, is necessary.
• Impact on geoeconomics: The use of economic instruments to promote and defend national interests and to produce beneficial geopolitical results by China can not be ruled out.
• Weaponisation of economy: The German think tank Mercator Institute for China Studies identified around 130 cases of coercive behaviour by China from 2010 to June 2023.
  • For example, last year, China suspended imports of Japanese seafood following the release of treated wastewater from the Fukushima nuclear power plant.