May , 2018
China accounts for nearly half of India’s total trade deficit
15:54 pm

Tushar K. Mahanti

“Ships leaving Nhava Sheva port, across the harbour from Mumbai, tend to ride higher on the water than when they arrive. India’s trading statistics explain why: steel and other industrial goods from China weigh down the ships as they come in, to be replaced on the way out by fluffy cotton bales, pills and—given India’s perennial trade deficit in goods—empty containers” writes the London-based financial weekly The Economist (February 27th, 2016).


And if The Economist is not fully right because ships which are carrying ores to China would often ride lower, its observation clearly explains India’s pathetic trade position against China. It has been almost one way trade with imports from China increasing at geometrical progression against a pathetic rise in India’s exports to China.


In last four years , between 2012-13 and 2016-17, India’s imports from China has increased 44% from Rs.2,84,384 crore to Rs.4,11,093 crore raising China’s share in India’s total imports from 10.7% to 16%. Exports to China during the same period has in fact, declined by about 7% from Rs.73,529 crore in 2012-13 to Rs.68,243 crore in 2016-17. China’s share in India’s total exports has remained nearly stagnant at around 4%. The seriousness of the matter is vivid when one finds that imports from China were more than six times that of exports.


The net result is a huge trade gap. India’s trade deficit against China increased from Rs.2,10,855 crore in 2012-13 to  Rs.3,42,847 crore in 2016-17. Almost half of India’s trade deficit was accounted for by China in 2016-17. The share has jumped from about 20% in 2012-13 to 47% in 2016-17.

The situation has reached to such an alarming level that even China has reportedly, agreed to draw a roadmap with action points and timelines for increasing bilateral trade in a sustainable manner.

One of the reasons for this unfavourable trade balance is that India exports mainly raw materials like iron ore, copper and cotton to China. Only three items of raw materials, Copper, iron ore and cotton accounted for about 36% of India’s total exports to China in 2016-17.  A huge Rs.11, 360 crore worth of iron ore was exported to China in 2016-17 accounting for 16.2% of India’s export to China. Cotton and copper at Rs.9,038 crore andRs.4,710 crore accounted for 13.2% and 7% of total exports to China. And thus, the deficit can be reduced only when India starts exporting value-added products. Unfortunately, the Indian manufacturing industries have to go a long way before they are geared up to export value-added products to China.

Even for products where India has better competitive power, China’s restrictive policies do not allow their entry. Take for example the case of generic drugs. India is one of the largest manufacturers of generic drugs. But it has not been able to export to China because of Beijing’s protectionist policies. While Indian pharmaceutical companies exporting generic drugs to the United States and Europe, as most of the drugs have received FDA and EU approval, it is quite striking that China does not allow imports of drugs from India. Indian pharmaceutical companies have taken up the issue with the Indian Commerce Ministry to  facilitate export of generic drugs to China, especially since a Chinese delegation completed inspections of their manufacturing facilities. The Indian Commerce and Industry Minister have also taken up the matter with his Chinese counterpart in this regard.


India on its part has tried to contain the imports from China by raising import duty on certain products.  The anti-dumping duties on chemicals and machinery items imported from China have already been in place for some time. Other Chinese products on which India has imposed anti-dumping duties include steel and other metals, fibers and yarn, rubber or plastic, electronics, and consumer goods.


The logic behind imposing anti-dumping duties is mainly to protect domestic industries, as they are not able to match the price of cheap Chinese products. Anti-dumping duties aim to create a level playing field for Indian manufacturers.


India initiated 223 anti-dumping investigations between January 2012 and July 2017 against various countries, with China topping the list with 62 such cases. Commerce and industry minister Nirmala Sitharaman has said that from time to time, the directorate general of anti-dumping and allied duties (DGAD) receives applications from domestic producers for imposition of the duty on various products.


“As on July 14, 2017, anti-dumping duty is on force in 141 cases and 54 more cases have been initiated,” she said.  Indonesia, Malaysia and Thailand also figure in the list of countries on whose products India has imposed this duty to safeguard its domestic industry from surge in below-cost imports and to provide them with a level playing field. Product categories on which the levy was imposed include chemicals, fibre boards, glass and glassware, pharmaceuticals and steel.


May be anti-dumping actions will restrict some imports. But what must be disturbing is that despite India’s own  expertise the import of electrical machinery has been one of the biggest items of imports. A huge Rs.1,47,428 crore worth of electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders, and reproducers and parts were imported from China in 2016-17. Its share was as high as 36.9% in India’s total imports from China.

The question is: How to reduce imports of electronic goods? The answer is: By manufacturing and supplying them  domestically at competitive prices. This would take us back to Modi’s ‘Make in India’ initiative. India has to produce quality goods at internationally competitive prices to curb imports, whether from China or any other country.


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