The trade deficit between India and China has reached its lowest point in five years, plunging to 45.8 billion USD in 2020. This drop is noteworthy since the trade deficit is a crucial economic indicator that represents the difference in value between a country’s imports and exports. Understanding the factors that contribute to this change and determining the effects of it on the economy are important for making informed decisions.
Understanding Trade Deficit
Trade deficit arises when the cost of a country’s imported goods exceeds the value of its exported goods. In simpler terms, when a country spends more on buying foreign goods than it earns from selling domestic goods to foreign countries, a trade deficit occurs.
Key Statistics of Bilateral Trade in 2020
In 2020, according to the figures released by China’s General Administration of Customs (GAC), the two-way trade dropped by 5.6% amounting to 87.6 billion USD. India’s imports from China were at 66.7 billion USD, showing a decline of 10.8% from the previous year, marking the lowest figure since 2016. India’s exports to China, contrastingly, witnessed a hike, surpassing the 20 billion USD mark with a growth of 16%.
An Analysis of India’s Import and Export Trends
India’s overall import rates dipped due to a slump in domestic demand in 2020. However, there is insufficient evidence to suggest that India has substituted its import reliance on China with other sources or local manufacturing.
India’s Biggest Imports and Exports to China
Major items that India imported from China in 2019 include electrical machinery and equipment, organic chemicals fertilisers, among others. On the other hand, India’s top exports to China comprise iron ore, organic chemicals, cotton and unfinished diamonds.
Trade Deficit with China
India’s trade deficit with China was marked at 45.8 billion USD in 2020, a decrease from 56.77 billion USD in 2019. The hefty trade deficit can be accredited to the limited range of primarily commodities that India exports to China and market access obstructions for Indian agricultural products and competitive sectors like pharmaceuticals, IT/IteS, etc.
Measures Taken to Reduce Import Dependence on China
In light of border tensions, more than 100 Chinese apps were banned, and increased scrutiny has been placed on Chinese investments across a variety of sectors. Consideration is being given to excluding Chinese companies from participating in 5G trials. To curb opportunistic takeovers, import restrictions have been imposed on tyres and mandatory prior approval has been established for foreign investments from countries sharing a land border with India.
The Ministry of Commerce and Industry has identified 12 sectors to escalate India’s role as a global supplier and to reduce the import bill. Furthermore, the government has approved a package of four schemes totalling Rs. 13,760 crore to enhance domestic production of bulk drugs and medical devices, intending to cut import dependency on China for Active Pharmaceutical Ingredients (APIs). This will also boost their export potential.
The recent developments indicate a strategic shift in trade relations and may act as a catalyst for boosting domestic industries, improving self-reliance and potentially reversing the longstanding trade deficit with China.