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Tensions high, but India’s lapping up Chinese goods. Why trade deficit’s hit record $101 bn

Trade deficit ballooned in 2022 calendar year in sharp rise from 2021 figure of $69.38 bn, according to Chinese customs data. Manufacturing sector recovery 'likely' driving imports.

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New Delhi: Despite tense bilateral relations between India and China, following the Galwan Valley clash in 2020, and Prime Minister Narendra Modi’s Aatmanirbhar Bharat push, India’s trade deficit with Beijing has crossed the $100 billion mark for the first time ever in the history of India-China bilateral relations,

According to analysts, the recovery of India’s manufacturing sector, which relies heavily on imports of Chinese goods, could have played a role in driving up imports of Chinese goods. India’s trade deficit stood at $101.02 billion for the calendar year of 2022, a sharp rise from the 2021 figure of $69.38 billion, according to agencies citing Chinese customs data.

Total bilateral goods trade with China reached a record level of $135.98 billion in the calendar year 2022, overtaking the $125 billion mark reached in 2021.

Official figures for December are yet to be published on the General Administration of Customs of the People’s Republic of China (GACC) website. However, preliminary GACC data cited by news agency PTI indicate that Indian imports of Chinese goods rose to $118.5 billion in 2022, a 21.7 per cent rise from 2021, and Indian exports to China fell 37.9 per cent compared to 2021.

High imports of Chinese goods could have been driven by India’s manufacturing sector which is recovering well from the Covid-19 pandemic and other disruptions, but continues to depend heavily on critical intermediates like active pharmaceutical ingredient (API) and electronic components from China, analysts said.

Speaking to ThePrint, Biswajit Dhar, trade economist and professor at the Centre for Economic Studies and Planning at Jawaharlal Nehru University (JNU), said this reflected poorly on India’s Production Linked Incentive Scheme (PLI).

“The import numbers show that the PLI scheme is yet to make any significant dent in imports from China. This implies that if India’s manufacturing sector expands rapidly in the near future, the country’s dependence on China will increase substantially,” Dhar said.

The PLI scheme seeks to provide incentives to domestic industries to boost local production.

“China is also the largest source of imports of some strategically important products. For instance, more than 70 per cent of accumulators and batteries imported by India during April-November 2022-23 are from China,” he said.

He added that India’s push for larger reliance on electric vehicles could also result in larger imports from China.

India’s manufacturing sector activity rose to a 13-month high in December, supported by healthy inflows of new business as well as strong demand conditions, a recent assessment by the Indian arm of financial information services provider, S&P Global, showed.

The S&P Global India Manufacturing Purchasing Managers’ Index (PMI) stood at 57.8 in December, up from 55.7 in November, indicating the “best expansion in production since November 2021”.

Also read: Being tied to Russia is not the most preferred option for China, says ex-NSA Shivshankar Menon

Growth in imports of Chinese goods

According to data from the Indian commerce ministry, which has only released figures up till November, imports of Chinese goods stood at $94.68 billion between January and November 2022, compared to $79.02 billion for the same period in 2021.

Meanwhile, Indian exports to China stood at $14.06 billion between January and November 2022, a fall from $21.53 billion for the same period in 2021.

Speaking to ThePrint, director general of the Federation of Indian Export Organisations (FIEO), Ajay Sahai, argued that the growth in imports from China is less than India’s overall imports growth during January-November, 2022.

“Imports from China grew from $79 billion in January-November 2021 to $94 billion in January-November 2022, at a rate of 19.8 per cent. In the same period, India’s aggregate imports grew from $512 billion to $665 billion, at a growth rate of 29.7 per cent,” Sahai said.

China’s share in India’s imports for this period declined from 15.4 per cent in 2021 to 14.1 per cent in 2022, he added.

Asked about certain sectors of the Indian economy relying on Chinese imports, he said: “A lot of imports from China are raw material, parts, components and intermediates required by the Indian industry and their growth shows manufacturing coming back on track and demands increasing.”

Concurring with Dhar’s observation about the production of electronic goods, Sahai said: “Machinery, electrical and electronics continue to have more than 50 percent in imports from China.”

(This is an updated version of the copy.)

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