In recent developments, provisional data from India’s commerce ministry reveals China’s reclamation as India’s top trade partner in 2020, amidst ongoing border tensions. This resurfaces despite increased anti-China sentiments that were prevalent throughout the nation last year.
Understanding China as a Top Trading Partner
In 2020, the two-way trade between India and China reached a whopping USD 77.7 billion. The previous year (2018-2019) had concluded with trade figures between these countries sitting at USD 85.5 billion. The substantial reduction in demand for goods amidst the Covid-19 pandemic saw the US being displaced by China as the largest commercial partner of India, with bilateral trade figures between India and the US capping at USD 75.9 billion.
Insights into Imports and Exports
In the same year, the total imports from China were noted to be USD 58.7 billion, an amount exceeding India’s combined purchases from the USA and the UAE, its second and third-largest trade partners respectively. Despite the ongoing tension, India increased its exports to China by approximately 11% compared to the previous year, recording a figure of USD 19 billion for 2020.
The Trade Deficit Scenario
Consequently, the bilateral trade gap with China stood at almost USD 40 billion in 2020, making it India’s largest. A trade deficit (or trade gap) is essentially the amount by which the cost of a country’s imports exceeds the value of its exports.
Analysis of the Emerging Trade Patterns
China’s ascend to the top trading partner of India can be attributed to an increased import of Chinese medical supplies. Even though there was an environment of anti-China sentiments in the nation, online shoppers in India showed a preference for Chinese mobile phones and electronic gadgets. According to Amazon’s Prime Day 2020 sale data, OnePlus, Oppo, Honor by Huawei, and Xiaomi were among the top-selling smartphone brands in India. Additionally, India continues to rely heavily on Chinese-made heavy machinery, telecom equipment, and home appliances.
India’s Action Plan against Dependence on Chinese Imports
To reduce this dependency, certain measures have been implemented such as a ban on more than 100 Chinese apps, citing national security issues, and increased scrutiny of Chinese investments in many sectors. Import restrictions have also been put on tyres, with approvals made mandatory for foreign investments from countries sharing a land border with India. This move aims to curb opportunistic takeovers of domestic firms, restricting FDI from China in the process.
Focus towards Self-sufficiency
The Ministry of Commerce and Industry has identified 12 sectors to enhance India’s global supply capabilities and cut down the import bill. These include food processing, organic farming, iron, aluminium and copper, agro chemicals, electronics, industrial machinery, furniture, leather and shoes, auto parts, textiles, and coveralls, masks, sanitisers, and ventilators. As part of this effort to cut import dependency on China for APIs (Active Pharmaceutical Ingredients), the government approved a package comprising four schemes with a total outlay of Rs. 13,760 crore in March 2020.
The Way Forward
While it is crucial for India to diversify its trade partners, completely severing economic ties with the world’s second-largest economy isn’t feasible. Chinese finance plays a significant role in supporting India’s start-up economy. However, India can be selective in its approach, curbing Chinese firms’ involvement in sectors like telecom, especially in 5G trials. Simultaneously, the existing infrastructure, primarily Chinese, used for the 4G network necessitates continued ties for maintenance and servicing. Through the Atmanirbhar Bharat Abhiyan, India can replace Chinese products with domestic ones in possible sectors, further enhancing economic relations with other countries.
