India’s Trade with China

India’s Trade with China

• In 2022, China's imports to India reached a record high, while the trade gap increased to more than $100 billion.

Major Points

• Iron ore, cotton, and other commodities based on raw materials were India's largest exports to China in recent years. China's demand for these commodities recovered last year (2021).
• India's exports to China: From $28.1 billion to $17.48 billion, India's exports to China decreased.
• From $69.4 billion in 2021, the trade imbalance increased by 45% to $101.02 billion in 2022.
• India's imports from China are $118.5 billion, an increase from $97.5 billion.
• Over 21% more Chinese items were imported into India last year.
• Largest Chinese imports into India: India has imported a lot of electrical and mechanical equipment, Active Pharmaceutical Ingredients (APIs), auto components, and, over the past two years, a range of medical supplies from oxygen concentrators to Personal Protective Equipments (PPEs).

Trade overall:

• In 2022, India and China's bilateral trade hit a record $135.98 billion.

China and other countries and Organizations:

• China's largest commercial partner, ASEAN, saw a growth in trade of 11.2% to $975.34 billion.
• EU: The EU was China's second-largest commercial partner, with trade increasing by 2.4% to $847.32 billion.
• U.S. trade increased by 0.6% to $759.42 billion.

The deficit in trade with China:

• In 2021, India's trade deficit increased to USD 69.38 billion.
• For more than ten years, India has emphasized its concerns about the expanding trade deficit with China and urged China to open its markets to Indian IT and medicinal companies.

Reason for Increasing imports:

• Increased imports of intermediate goods, new product categories including medical supplies, and recovering Indian demand are the causes of the growth in imports.
• Active pharmaceutical ingredients (APIs), chemicals, electrical and mechanical machinery, auto parts, and medical supplies were among India's top imports from China in the previous two years.

Steps taken to Counter Dependence on China:

• Chinese apps have been banned as a countermeasure to dependence on China.
• Increasing scrutiny of Chinese investments across various industries and the choice to exclude Chinese firms from 5G trials.
• To prevent "opportunistic takeovers" of domestic enterprises, the government has also made its prior clearance necessary for foreign investments from nations that border India on land. This decision will limit FDI from China.
• The government in March 2020 approved a package consisting of four schemes with a total investment of Rs. 13,760 crores to increase domestic production of bulk medications and medical devices in the nation as well as their exports in order to reduce import dependency on China for APIs (Active Pharmaceutical Ingredients).

About Trade Deficit:

• When a nation's imports surpass its exports during a specific time frame, a trade deficit results.
• It is also known as a negative trade balance (BOT).

Positive aspects of trade deficits:

• It permits a nation to consume more than it generates. Short-term trade deficits can assist countries in avoiding product shortages and other economic issues.
• Under a system of floating exchange rates, puts downward pressure on a nation's currency. The country's exports become less expensive and more competitive in overseas markets as a result of the domestic currency's devaluation.

Disadvantages of Trade Deficits:

• Trade deficit drawbacks include the potential for economic colonialism.
• When a nation consistently has a trade deficit, residents from other nations raise money to invest in that country's capital.
• That can entail making fresh investments that boost output and generate employment.
• However, it might simply just entail purchasing already-existing companies, resources, and other assets.
• Foreign investors will soon acquire almost everything in the nation if this buying trend keeps up.
• With fixed exchange rates, trade deficits are often far more harmful.
• A fixed exchange rate system makes currency devaluation unfeasible, trade deficits more likely to persist, and major increases in unemployment possible.

Conclusion

• Growing Indian imports from China are both a cause for concern given the country's continuous reliance on China for a number of essential items and a sign that the Indian economy is importing more intermediate goods.