Magazine

English Hindi

Index

Prelims Capsule

Economy

India China bilateral trade to cross 100 billion dollars for the first time

India China bilateral trade to cross 100 billion dollars for the first time

Relevance:

  • GS 3 || Economy || External Sector || Foreign trade

Why in the news?

The General Administration of Customs (GAC) of China revealed the country’s international trade data for October with a year-on-year increase of 22.2%.

GAC’s data also shows that the international trade volume between China and India reached $102.29 billion, exceeding the milestone of $100 billion for the first time in 2021.

Trade between India-China at Present:

  • From January to October 2020, trade between China and India was $69.19 billion.
  • The GAC statistics indicated that overall trade volume between India and China was $102.29 billion, up 32.36 percent over the same period last year, with the balance of trade substantially skewed in Beijing’s favor.
  • China exported $78.33 billion worth of commodities to India, while India exported $23.96 billion worth of goods to China.

India-China trade relation:

  • Since the beginning of the 21st century, trade between China and India has grown from less than $3 billion to nearly $100 billion, an increase of about 32 times. In 2019, the trade volume between China and India was $92.68 billion.

  • The Development Research Center of the State Council of China has held 4 rounds of dialogues with the NITI Aayog of India, reaching consensus on promoting sustainable and high-quality economic development of two countries, safeguarding global multilateral trade mechanisms, promoting the reform of the global governance system and guarding against international economic and financial risks.
  • China and India have held 6 rounds of strategic economic dialogues to exchange macroeconomic policies on infrastructure, high technology, energy conservation, and environmental protection, energy, and medicine and promote practical economic and trade cooperation.
  • India-China economic relations constitute an important element of the strategic and cooperative partnership between the two countries.

What is a trade deficit?

  • The trade deficit between the two countries stood at $44.02 billion in 2020-21, according to data shared by the Indian commerce ministry in August. Last fiscal’s trade deficit had actually dipped from $53.57 billion in 2018-19.
  • The deficit comes as India and China seem set to hit a record-high trade of $100 billion, having already touched $90.37 billion in the first nine months of 2021 — a 49.3 per cent year-on-year rise, according to the Chinese customs data.

Why is there a  huge deficit?

  • India’s exports to China are mainly of iron ore, cotton and
  • Some of India’s key imports from China include components for smartphones and automobiles, telecom equipment, plastic and metallic goods, active pharmaceutical ingredients (APIs), and other chemicals.
  • The Indian pharmaceutical sector, with the exception of some basic technological gadgets such as mobile phones, requires Chinese aid.
  • China imports about 50 to 60 percent of the chemical and other components used in the Indian pharmaceutical industry.
  • Trade surplus: The rising trade deficit is unlikely to cause severe problems because of the trade surplus in services and the entry of foreign funds into stock and debt markets.
  • At the end of October, India’s foreign exchange reserves exceeded $640 billion.

What are the main imports and exports from china?

  • The main imports from China include- Clocks and watches, musical instruments, toys, sports goods, furniture, mattresses, plastics, electrical machinery, electronic equipment, chemicals, iron and steel items, fertilisers, mineral fuel and metals.
  • Most of India’s exports to China are goods and raw materials.
  • The main exports to China are petroleum products, cotton, organic chemicals, iron ore and plastic raw materials.

What needs to be done to reduce the trade deficit?

  • Boost the manufacture: India would need to boost the manufacture of components and share of electronic goods designed in India to boost self reliance and potentially cut imports.
  • Improve supply chain: Mobile and electronics industry has a long supply chain; there has been an increase in the share of intermediate goods such as PCBs (Printed Circuit Boards) in imports relative to finished goods such as mobile phones.
  • Lack of electronic components: Because India was still primarily involved in the assembly of electronic goods, Indian companies did not have much leeway when it came to obtaining components.
  • Enhance more use of Indian Products: The government needed to “provide a nudge in terms of market access” to increase the usage of Indian components in products.

Steps taken by the government to reduce this deficit:

  • Government has time and again raised concerns over widening trade deficit with China.
  • Technical regulations and quality norms: The government is taking steps such as framing technical regulations and quality norms for several products to cut dependence on China for imports As many as 371 products have been identified for technical regulations.
    • Out of these, technical regulations have been formulated for 150 products worth about $ 47 billion of imports.
    • Over 50 quality control orders (QCOs) and other technical regulations have been notified in the past one year including on electronic goods, toys, air conditioners, bicycle parts, chemicals, safety glass, pressure cooker, items of steel, electrical items such as cables.
  • Anti-dumping duties: India has also imposed anti-dumping duties on several goods which are being dumped in the domestic market at below the average prices from China with a view to guard domestic players from cheap imports.

What about FDI from china?

  • Similarly, foreign direct investment (FDI) from China into India too has dipped to $ 163.78 million in 2019-20 from $ 229 million in the previous fiscal.
  • India had received $ 350.22 million FDI from the neighbouring country in 2017-18 and$ 277.25 million in 2016-17.
  • During April 2000 and March 2020, New Delhi attracted FDI worth $ 2.38 billion from China.

Conclusion:

India cannot afford to sever all its economic links with the world’s second-largest economy, even in the digital space. Chinese finance will help in sustaining India’s start-up economy. However, through Atmanirbhar Bharat Abhiyan, India can try to replace chinese products with domestic products in the sectors where it is possible. Further, it needs to boost up its economic relations with other countries.

Mains oriented question:

Despite India’s persistent trade deficit, bilateral trade with China is favourable to India. Evaluate critically. (250 words)