Wednesday, 25 May, 2022
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India losing trade battle with China — 80% of two-way business last year were imports

For trade relations between India and China to become balanced, Chinese firms must also ‘make in India’ and not just sell to India.

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While the United States and China inch toward a deal to end their bruising trade war, India is still struggling with its lop-sided trading relationship with Beijing.

A commitment from China made by President Xi Jinping to Prime Minister Narendra Modi during the “informal” summit in Wuhan in April last year to import more Indian goods, starting with rice, sugar and pharmaceuticals, has had little impact on a widely imbalanced trading relationship.

New trade figures from China’s General Administration of Customs, ThePrint can reveal, paint an alarming picture of relations with India’s largest trading partner. In 2018, two-way trade reached $95.5 billion, up 13 per cent from the previous year (when it stood at $84.4 billion). India’s imports, however, made up just $18.8 billion.

But if trade has increased, so has India’s deficit. The trade imbalance, in China’s favour, is now $58 billion, up from $51 billion in 2017. China’s exports to India have grown to $76.7 billion, now accounting for a record 80 per cent of the total two-way trade.

Also read: After giant pharma push, China keeps Indian drug makers waiting

In a relationship fraught with a history of political difficulties, trade has over the past two decades emerged as among the few bright spots. In the past five years alone, two-way trade is up by one-third.

The problem is, even this bright spot is now in choppy waters. Campaigns by India to open up the Chinese market to Indian IT and pharma exports haven’t appeared to have made headway.

In April, at the Wuhan Summit, Prime Minister Modi and President Xi discussed increasing Indian exports of rice, sugar and pharmaceuticals to China. But Indian companies say that statements of intent from Chinese officials haven’t always been followed through with action. Rice and sugar would, in any case, have a limited impact on narrowing the deficit.

India’s larger concern is with regard to services, and the lack of market access for both Indian IT and pharma companies. An uneven playing field is hardly a uniquely Indian problem, and is one of the targets of US President Donald Trump’s trade war with China. However, unlike the US, whose market and technology is still invaluable for Chinese companies, India has comparatively little leverage.

Also read: India could stand to gain from US-China trade war

Part of it is a problem of India’s own making. India’s approach to trade with China has been ad-hoc and piecemeal, lacking a coherent strategy.

Unlike how China approached the West, India opened a market worth tens of billions of dollars to Chinese technology and power companies, while getting little in return, either in the way of Chinese investments in India or in terms of securing market access for Indian companies in China.

Indian companies, meanwhile, continue to have a range of non-tariff barriers in China, particularly in IT and pharma, where a lack of transparency in regulatory policy has hindered Indian firms. While the lack of a level playing field has certainly disadvantaged Indian companies, here, too, our approach hasn’t helped either.

Unlike most Western countries, it is remarkable India doesn’t have an equipped chamber of commerce in Beijing to help navigate the complex legal and regulatory requirements of the China market. The Confederation of Indian Industry (CII) has had a representative office in Shanghai that has admirably championed Indian firms, but with very modest resources.

Also read: Why India won’t really gain much from China’s slowing economy

India has suffered from a lack of a coherent strategy that has allowed Chinese companies from telecom to power to enter — and profit from — the Indian market without investing a dollar in India or offering reciprocal access to the China market. Consider telecom. India is now one of the biggest overseas markets for Chinese mobile phone companies, but few are manufacturing in India.

There are lessons from China, too, in how Beijing has used its market to attract foreign companies, while at the same time absorbing foreign technological expertise and investment. While India may not have the leverage to follow Trump’s example with China, there are, perhaps, other lessons on offer. For a start, a more coherent trade strategy could help India achieve some of its long-pursued objectives either in the China market or in getting Chinese companies to make in — rather than merely sell to — India.

(Ananth Krishnan is a Visiting Fellow at Brookings India and was formerly China correspondent for India Today and The Hindu).

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  1. We need to also look at what we buy and how much value they add to us. India needs to place heavy tarrif on goods that are cheap but of poor quality. Goods of good quality that can enhance our productivity should be imported. Indian manufacturers also need to step up on forward integrations and try to become more competitive. Indian government needs to build the Infrastructure needed to enable industries at a much faster pace than it is today.

    Regarding building trade relationship with China, it is a futile exercise. China’s mask has been exposed clearly when in thwarted India’s attempt to blacklist terrorists. It would make sense to focus on countries like Taiwan , Israle, France, Germany etc and see how India can take advantage of there technical capabilities to enhance our productivity and competitiveness. Imports frim China are also good if they can improve our productivity and competitivenes. IMHO China would never export anything that would improve India’s long term competitiveness. It is proboably focused on blunting India’s edge in the long run to thwart India’s raise and dominate Asia if not the world.

  2. But Modi admirers say that India will topple Chinese economy if he comes back to power.
    For Modi India, there is only one war. Against Pak.
    Ha ha

  3. If we shed our penchant for buying sub standard and cheap goods, we may be able to discourage Chinese imports.

  4. 1. It may be true that at present India has no choice but to allow duty-free imports from China. We are aware of trade war between USA & China and as they say no one wins in trade wars. 2. But I guess trade wars become inevitable when a country like Communist China poses a threat to local manufacturers and cannot be deterred by negotiations. 3. Then, what is alternative left? Is it not true that during last two decades or so China has used free trade policies very cleverly to increase exports and rapidly expand its manufacturing capabilities? At same time, China has used its opaque systems to devise a strategy which has enabled it to restrict imports. 4. Is it true that on account of Communist China’s invisible subsidies to its manufacturing sector, democratic countries like USA, India and many EU countries are at a disadvantage when they trade with China? I think all democratic countries must join hands so that they can defeat China in its game of subsidized exports. 4. I wish to record one more incidental observation. China today has one point agenda- that of proving to the world that it is a super-power and no one should even think of challenging China. If one observes, Chinese actions during the last few years- be they are with regard to its claim on the South China Sea islands or our own Arunachal Pradesh and parts of Sikkim- they are all well-directed to destabilize our country. I believe that the democratic world should take cognizance of this new ugly face of aggressive China.

  5. Agricultural commodities, minerals and raw materials, the mainstay of Indian exports to China can go only so far. The bulk of global merchandise trade consists of manufactured goods. That is where India is weak, with expensive power and poor transport infrastructure being partly responsible. Indian exports today are lower than they were in 2014. 2. India – with or without joining BRI – should be more open to long term Chinese investment. We could also encourage Chinese firms to shift some of their manufacturing facilities to India, where their labour costs have risen enormously.

    • We, in fact, have more than one weakness. Our biggest weakness is the trading mindset that our business leaders have and the politicians who would do anything for traders to succeed. A simple study of productivity, value-addition, product or process innovation among Indian businesses will tell us why we fail. To add to our own misery, our businesses don’t have or don’t invest sufficient equity. They use public sectors banks as their piggy banks who provide them equity in guise of loans. Our capital markets fail to inspire confidence of local investors and therefore the money raised from the primary market in most years is pathetically low. Our secondary markets are source of speculative rent seeking by foreign and domestic institutional investors. Our desperation to keep INR appreciating, without reason, provides free lunch to equity investors. Even when we have international money, it comes in form of private equity – short term and extremely expensive. As a result what we have is a business eco-system that is rent seeking – is unwilling and is unable to take risk. R&D Investment even by the most profitable firms in major industries is pathetic.

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