ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Rising India–China Trade Deficit

Policy for Bridging the Gap

India’s trade deficit with China has been continuously increasing over the years and is a major cause for concern to all stakeholders. In this context, India–China trade is analysed in detail to explore the reasons for unbalanced bilateral trade and its implications. Further, the article examines the market access difficulties for India’s exports to China and suggests alternative solutions, including intra-industry trade model with ASEAN countries, to reduce dependency on China.

The authors thank Dinesh Kumar for research assistance.
 

Rising IndiaChina bilateral trade has led to two hypotheses: the Chindia, wherein the expansion in bilateral trade between the two Asian powers would reduce their joint pressure on the economy of the rest of the world; and, India and China, jointly affecting the third world, which is attributed to their strong complementarities (Boillot  and Labbouz 2006). However, the past two decades have described a different story. Indias trade deficit with China, which stood as $671 million, increased to $23 billion in 2010, and reached the historical high level of $87 billion in 2022, characterised by Indias large exports of low value-added products and massive imports of technology-intensive manufactures. This finding leads to a relevant question as to why the fruits of bilateral trade have favoured China and not India, despite three decades of opening up of Indias economy.

Indias merchandise trade with the world reached more than $1 trillion in 202223. During the year, India exported $447 billion worth of goods while it imported $714 billion, implying a merchandise trade deficit of $267 billion, with two-fifths only with China, suggesting an excessive dependence on a single country, at a time when the land dispute is at a vulnerable stage. Chinas trade deficit has almost doubled in the past decade from the previous level of $36.2 billion of FY 201314. This trade deficit with China has been despite the decline in Chinas share in Indias imports by 1.64% in FY 23 compared to the previous year, largely pushed down by almost 7% in the electronic goods, thereby suggesting the continuous pressure on Indias exports to the Chinese market. Considering the growing deficit with China, India has tried to strengthen domestic production on various fronts, including the most recent move to curb the imports of computer products from China. The phenomena of the rising deficit with China appears to be irreversible in the short run, but also casts a doubt on whether India can overcome the same in the coming decades. The background is sufficient to draw the attention of policymakers to a debate on whether Chinas growing presence in Indias market or the over-reliance of India on the Chinese market can sustain the long-run trade deficit of India. This is in the context of the wider implications on growth prospects as endorsed by the trade theories that call for augmenting the role of globalisation in economic transformation and betterment. The answers to the above problem lie in whether India can gain competiveness in exports in the long run in the sectors where China enjoys a presence in the global markets, or alternatively, whether India can source the intermediate imports to finally bridge the demandsupply gap of high value-added products in the domestic market. This article sheds light on these issues, especially on how India can sustain its trade deficit with China in the long run.

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Published On : 20th Jan, 2024

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