China is one of India’s largest trading partners, standing second only to the United States of America. The Indo-China bilateral trade in 2021-22 was an impressive USD 115.83 billion, accounting for around 11.2% of India’s total merchandise trade of USD 1,035 billion. Merely twentieth on the list two decades ago, China began its climb up in 2002-03 and has since held the position of India’s top trading partner several times.
As of 2021-22, besides the US and China, India’s top-10 trading partners include the UAE, Saudi Arabia, Iraq, Singapore, Hong Kong, Indonesia, South Korea, and Australia.
Trade Surplus and Deficit: Comparing China and the US
While India enjoys a healthy trade surplus with the US (USD 32.85 bn – 2021-22), the situation with China presents a different story. India has a significant trade deficit with China of USD 73.31 bn, the highest deficit India holds with any country.
Indian imports from China soared from USD 2 bn (2001-02) to USD 94.57 bn (2021-22). Meanwhile, India’s exports to China only increased from about USD 1 bn to USD 21 bn within the same period.
Key Commodities in India-China Trade
Top commodities India purchases from China encompass electrical machinery, television image and sound recorders, nuclear reactors, boilers, organic chemicals, plastic articles, and fertilisers. Chinese imports highly valued by India include personal computers, monolithic integrated circuits-digital, lithium-ion, solar cells, and urea.
In contrast, India’s exports to China primarily consist of ores, slag and ash, organic chemicals, mineral fuels/oils, iron and steel, aluminium and articles, and cotton. The most valued export item is light naphtha.
Implication of India’s Heavy Import Dependency on China
A country’s political and security challenges get compounded when it relies heavily on importing products from a potentially hostile nation. Predominantly, India imports most of its Active Pharmaceutical Ingredients (APIs) used in its pharmaceutical industry from China as they are cheaper than their domestic counterparts.
The peril of over-reliance was unearthed during the Covid-19 pandemic when export restrictions led to a slump in Indian exports of APIs. Furthermore, about 24% of India’s coal energy might be generated using critical equipment imported from China, posing a potential security challenge.
Countering Over-Reliance on Chinese Imports
To reduce dependency, India has initiated several measures such as banning Chinese apps, scrutinising Chinese investments, curbing opportunistic takeovers of domestic firms, and promoting local production of APIs. These steps also encompass a de facto ban on Chinese power equipment imports and imposing anti-dumping duties to protect local manufacturers.
To further bolster its economy, India has identified 12 sectors—food processing, organic farming, iron, aluminium and copper, agro-chemicals, electronics, industrial machinery, furniture, leather, shoes, auto parts, textiles, and PPE—to develop domestic industry and reduce import bills.
Strategies for Reducing Import Dependence
While it may be impractical to end strategic dependence on various crucial imports entirely, it is possible to diversify by reducing reliance on China. In an attempt to do so, India can deepen trade relations with other nations like the U.S., Europe, South Korea, and Japan, thereby augmenting ties with countries that share favourable political relationships.
A more self-reliant approach in major sectors where India is a net-importer is another prudent way forward. Encouraging technology and capital investment could significantly boost this endeavour.
Last Modified: February 20, 2024