Trade gap between India and China continues to widen

The trade gap between India and China continues to widen, reflecting persistent challenges despite efforts to curb imports and boost domestic manufacturing

Overview of Trade Dynamics

Current Trade Statistics:

• Imports from China rose by 3.29% in FY24, reaching $101.75 billion up from $98.51 billion in FY23.
  • Key items imported from China include plastics, steel products, fertilizers, among others.
• In FY24, India’s exports to China increased by 8.74% to $16.67 billion from $15.33 billion in FY23.
  • Key items exported to China from India include iron ore, cotton yarn, cotton, quartz, among others.
• India’s imports from China resulted in a trade deficit of $85.08 billion in FY24, marking a 2.3% increase from FY23.
• The trade deficit has cumulated to over $387 billion in the last five years.

Reasons for Widening Trade Deficit:

• High dependency on China for critical raw materials used in clean energy, electronics, and electric vehicles.
• Many Chinese companies in India prefer buying supplies from China.
• India predominantly exports raw materials and minerals to China, resulting in limited diversification & stagnant growth in exports.
• The expansion of manufacturing facilities in India has driven up the demand for raw materials, leading to higher imports from China to meet this demand.
• Firms often prefer sourcing supplies from China due to lower costs, contributing to higher imports from China compared to other countries.

Government Initiatives and Their Impact

India’s Strategic Trade Realignments:

• India is actively pursuing a shift in its trade strategy from East to West, engaging in negotiations for free-trade agreements (FTAs) with nations like the US, UK, Australia, Japan, and others.
• This strategic pivot excludes China, with whom India trades under the Asia-Pacific Trade Agreement (APTA).

Import Curbs and Domestic Manufacturing:

• The government implemented import restrictions and advocated for domestic production to reduce dependency on Chinese imports.
• Notable success in the electronics sector, particularly in mobile phone assembly, due to increased tariffs and domestic policies.

Production Linked Incentive (PLI) Scheme:

• Aimed at reducing import reliance in critical sectors by offering incentives for domestic production.
• To reduce import dependence and boost domestic production, the government has launched production-linked incentive (PLI) schemes in 14 critical sectors.

Other key data:

India’s overall Merchandise Exports and Imports:

• Total merchandise exports for India were reported at $437.06 billion in FY24, a decrease from $451.07 billion in the FY23.
• Merchandise imports decreased to $677.24 billion from $715.97 billion in FY23.
• India’s merchandise trade deficit narrowed to $15.6 billion in March 2024, the lowest in 11 months.
• Electronic goods, pharmaceuticals, engineering goods, and iron ore were major contributors to export growth.
• Additional significant exports included cotton yarn/fabric, handloom products, and ceramic products & glassware.

China’s Economic Challenges and Implications:

• China’s economy faces challenges such as declining property investment, debt risks, and weak consumption growth.
• In 2023, China witnessed a contraction in merchandise exports for the first time since 2016, indicating a slowdown in its economy.
• Total merchandise imports by China also declined 5.5% in 2023.
• Key items exported to China that saw significant growth in FY24 included iron ore, cotton yarn, cotton, quartz, unwrought aluminium and sanitary items.

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