New Delhi: There’s some bad news about the trade imbalance between India and China: it looks set to get worse this year.
Not only is the trade deficit expected to enlarge yet again, India’s exports to China could also fall for the first time in years if data from the first two months of this financial year is any indication. Commerce ministry data shows that in April and May, India’s exports to China declined by 31 per cent, while imports grew by 12.75 per cent.
Going by the data on the ministry’s website, in the past seven years, there has never been a contraction in India’s exports to China — barring 2019-20, when the pandemic upended global trade.
“One of the major reasons for the decline in exports is the fall in global commodity prices due to concerns of a recession in the global economy,” a senior government official told ThePrint.
In 2021-22, the trade deficit between India and China rose to $72.9 billion, up from $44 billion in the previous year. Overall, India’s merchandise trade deficit in the same year was $192.24 billion, an increase of 87 per cent from the previous year.
A trade deficit occurs when a country’s imports of goods and services exceed its exports in a given time period. In the current year, until May, the deficit with China stands at $12.32 billion.
Overall, the trade between the two countries grew a mere 2 per cent in April and May, when compared to the previous year. Territory-wise data for June has not yet been uploaded by the Ministry of Commerce.
Speaking to ThePrint, Biswajit Dhar, professor, Centre for Economic Studies and Planning, Jawaharlal Nehru University, said the headwinds that China is facing currently with regard to its domestic lockdowns to prevent the spread of Covid is now reflecting in the trade numbers.
Dhar, however, added that he expects the trade deficit with China is only going to increase “because India’s exports are not expanding”.
‘India needs export-competitive industries’
Some of the top commodities that India exports to China include petroleum products, iron ore, marine products, organic chemicals, non-basmati rice, spices, castor oil, and copper products.
India’s imports from China, on the other hand, have largely been driven by capital and intermediate goods, said the government official quoted above. These include electronic components, computer hardware, telecom equipment, industrial machinery, and consumer electronics.
Due to the slump in China’s manufacturing in the wake of Covid lockdowns, iron ore and copper exports have declined sharply in value. Meat and cotton exports from India have also declined, commerce ministry data shows.
India, meanwhile, has been dependent on China for a lot of chemicals that are used in many industrial products. The government official said that India also had a “major dependence” on China for pharmaceutical products that are used as raw materials for goods that are eventually exported.
Dhar said that he did not expect the imbalance to rectify anytime soon.
“Even after the Chinese economy opens up, I don’t think the trend will change because going by the 2021 data, China was not affected as much with Covid. If you look at all the macro indicators, and then if you extrapolate those figures on the trade data, then you will find that the trade deficit with China has reached record levels,” he added.
Dhar said that the only way India can reduce its trade deficit with China is by setting up export-competitive industries.
“It’s not about Make in India, but Making in India to be globally competitive. And this only comes from scale. I don’t think India has internalised this yet,” he said.
According to a State Bank of India (SBI) research report from February, India can add up to $20 billion to its Gross Domestic Product (GDP) if it can reduce its dependence on imports from China by 50 per cent by leveraging production-linked incentive schemes. The report further said that China’s share in India’s total merchandise imports has steadily increased to 16.5 per cent 2021-22.
In the past decade, barring one or two years, China has been India’s biggest trading partner. In the last financial year, this distinction went to the United States, much to China’s discomfiture.
In 2021-22, bilateral trade between the US and India stood at $119.42 billion, compared to $80.51 billion in the previous year, according to the commerce ministry data. Bilateral trade with China stood at $115.42 billion in the same period.
This comes on the back of Covid slowing down the Chinese economy considerably and a favourable geo-political environment for India after the economic face-offs or ‘trade war’ between the US and China.
Experts also believe that supply disruptions due to lockdowns in China made many countries realise the need to diversify their import sources.
(Edited by Asavari Singh)