New Delhi: India’s international trade crossed the $1 trillion mark for the first time in the year ending December 2022. However, data from the Ministry of Commerce and Industry show that this has come with a record high trade deficit — over $85 billion — with China.
An analysis of the official data also highlights the rising concentration of the neighbouring country in India’s overall imports over the past 10 years.
According to the data for January-December 2022, with exports worth $453 billion and imports to the tune of $723 billion, India’s overall international trade reached $1.17 trillion, 21 per cent above the previous year’s $969 billion.
India’s trade deficit — excess of imports over exports — stands at $270 billion, about 51 per cent higher than $178 billion in 2021.
An analysis of India’s foreign trade statistics shows that while international trade has risen by 15 per cent on average in the past 10 years, both India’s exports and imports have become slightly more concentrated, or limited to fewer countries.
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Biggest partners: US and China
Data available on the Ministry of Commerce and Industry’s web portal Tradestat shows that the US is India’s biggest trade partner with a total trade value of $131 billion. China is second, with a total trade value of $118 billion. These two nations alone accounted for more than a fifth of India’s international trade.
A key difference between these two countries, however, is that India runs a huge trade deficit with China and a surplus with the US.
In 2022, 14 per cent of India’s imported goods came from China, with the imports valued at $102 billion. This value is 17 per cent higher than the previous year’s $87 billion.
India’s exports to China in 2022 were valued $15.15 billion, almost 34 per cent lower than last years’ $23.05 billion. India’s trade deficit with China in 2022 comes to $87 billion — which is about one-third (32.4 per cent) of India’s overall trade deficit of $270 billion. Almost five years ago, this deficit was in the range of $50-$60 billion.
Meanwhile, India’s exports to the US have surged. In 2022, India exported $80 billion worth of goods and imported goods worth $50 billion from the US, which means a trade surplus of $30 billion. Five years ago, this surplus used to be around $17.3 billion.
Market Concentration
Another interesting finding from these statistics is the slight rise in the concentration of India’s import partners. For instance, in 2012, the top 10 import partners used to account for 53 per cent of India’s overall imports. In 2022, the share of top 10 import partners has increased to 58 per cent.
This is largely due to China’s rising share in India’s overall imports. In 2012, Chinese goods accounted for 10.6 per cent of India’s overall imports.
The development is significant given the tense bilateral relations in light of the Line of Actual Control (LAC) stand-off, which started in 2020.
In fact, the gap between China and India’s next biggest import partner — the United Arab Emirates — is about $50 billion.
Due to the international trade agreement that India signed in 1997 with the WTO, information technology products became duty free. India did not have enough industries to produce such products, which ultimately put the ball in the hands of other nations. This is why laptops comprise the single biggest imports from China.
In 2022, India imported laptops worth $4.7 billion from China. Monolithic integrated circuits used in electronics formed the second biggest import shipments, at $4.2 billion.
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Can India become net exporter soon?
In a conversation with ThePrint last week, Susannah Patton, the Australia-based Lowy Institute’s Southeast Asia program director, said the country’s inward looking economic policy and not signing plurilateral free trade agreements made it less connected to the countries in Asia, where its influence isn’t that strong.
According to Deepanshu Mohan, associate professor of economics and director at the Centre for New Economics Studies at the OP Jindal Global University in Sonipat, structural weakness in India’s growth story may have a lot to add to its trade imbalance.
“Our industrial set-up was designed to cater to the demands of the top 10 per cent wealth bracket. Hence, we never could develop industries to scale for the remaining 90 per cent population. Consequently, in other countries, particularly, our neighbours, scaled it up in time albeit with paltry wages and became the suppliers for goods consumed by the majority of India,” he said.
“With the minimum level of wages India envisages to offer, it’s no longer placed in a position to compete with the final prices of other countries. Till the time India doesn’t scale up the production of goods for which the domestic consumption/demand is high, becoming a net exporter will be an uphill task,” he added.
India’s export growth strategy, Mohan said, is largely tilted towards manufacturing, something that the country doesn’t have a comparative advantage in.
“The efforts to promote export growth are also going into manufacturing, for which we have fierce competitors. For India to be a net exporter, it has to incentivise the exports of services, where we’ve had relative advantage for a long time,” he added.
(Edited by Anumeha Saxena)
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