In 2021, India’s trade with China crossed a significant milestone of USD 125 billion, with imports nearing an unprecedented USD 100 billion. The data reveals a continued demand for a diverse range of Chinese goods, predominantly machinery, amidst strained relations due to the protracted military standoff in eastern Ladakh.
Key Exports and Imports between India and China
India’s most notable exports to the Chinese market over recent years include commodities such as iron ore, cotton, and other raw materials, which saw a resurgence in interest last year. Conversely, India’s chief imports from China consisted of considerable quantities of electrical and mechanical machinery, Active Pharmaceutical Ingredients (APIs), auto components, and wide-ranging medical supplies, including oxygen concentrators and Personal Protective Equipments (PPEs).
Growth Trends in Bilateral Trade
The 43% year-on-year growth in bilateral trade between India and China was among the highest witnessed amongst China’s major trading partners. Comparatively, trade figures with the top three partners reflected growth rates of 28.1% with ASEAN, 27.5% with the European Union, and 28.7% with the USA.
India’s Rising Trade Deficit with China
The trade deficit for India swelled to USD 69.38 billion in 2021, fueling concerns that have been raised over a decade about the increasing trade disparity with China. India is urging China to open its markets to Indian IT and pharmaceutical sectors to help balance this deficit.
India’s Measures to Counter Dependence on China
To address the growing dependency on China, India has resorted to banning Chinese apps, scrutinizing Chinese investments in various sectors, and excluding Chinese companies from 5G trials. The government has also enforced a rule for mandatory prior approval of foreign investments from border-sharing countries to limit “opportunistic takeovers.”
In efforts to reduce dependency on China for APIs, the government approved a substantial package in March 2020 to boost domestic production of bulk drugs and medical devices. Further, 12 sectors were identified for their potential to make India a global supplier and thus reduce import bills.
Current Issues in India-China Relations
The military standoff in Eastern Ladakh that began in May 2020 following a violent encounter in the Pangong lake areas significantly strains India-China relations. The two sides’ armies continue to fortify their positions, with tens of thousands of troops and heavy weaponry deployed along the border.
China’s new land border law came into effect in 2022, asserting China’s adherence to treaties related to land boundary affairs with foreign countries. Moreover, the renaming of several places in Arunachal Pradesh by China as part of its claim on the Indian state has been strongly repudiated by India. Lastly, news of China building a bridge across Pangong Lake has raised concerns in India.
Proactive Measures for Reducing Dependency on China
To reduce reliance on Chinese products, it is imperative for India to scrutinise the imports from China and develop strategic ways forward. By leveraging the economic complexity model, the Indian government can outline effective road maps through categorising them based on technological and innovation capabilities.