Economy
Mint Primer: How China beat the US to No.1 in trade with India
Summary
- Trade between the Asian giants has grown robustly in the past five years from around $80 billion.
In FY24, China overtook the US to become India’s largest trading partner after a gap of two years. Mint looks at how trade between the two Asian giants has evolved and why it is proving to be so difficult for India to decouple itself from its neighbour.
How big are India’s trade ties with China?
In FY24, bilateral trade grew 4% to $118.4 billion from $113.8 billion in FY23. India-US trade in the same period declined by 8.6% to $118.3 billion. Trade between the Asian giants has grown robustly in the past five years from around $80 billion. India-China and India-US trade ties are also a story of contrasts. While India enjoys a hefty $36.7 billion trade surplus with the US—it exports more than it imports—the reverse is true for China, where it suffers from a debilitating deficit. This shows that campaigns such as boycott of made-in-China goods or firms of Chinese origin have had negligible impact on trade.
How did the trade deficit widen?
Last fiscal, the deficit touched a record $85 billion having doubled in the past four years (see table). During the year, imports from China grew 3.3% to cross $100 billion even as India’s overall imports declined 5.6% at $675 billion. This undermined an 8.8% growth in exports to China during the year at $16.7 billion, which came off a low base courtesy a 28% decline in FY23. China now accounts for 10.6% of India’s global trade and 15% of its import bill. The high trade deficit has been a subject of friction between the two countries amid allegations of dumping of goods by China from different sectors in India.
What are India’s main imports from China?
Machines and electric appliances made up over half of all Chinese imports in FY24. China sold machinery worth nearly $54 billion—an over 10% growth on-year. India also imported chemicals worth $11.5 billion, plastic goods worth $5.7 billion, iron and steel products worth $4.7 billion and fertilizers worth $2.2 billion from across the border in the previous fiscal.
How has India tried to address this problem?
It has taken multiple steps like increasing import duties or putting items on restricted lists. In 2019, duties were raised on air-conditioners, CDs, DVDs, CRT monitors and TV display panels. The list was expanded to include fans, water heaters, ovens, electric vehicles, and compressors for refrigerators. After the Galwan clash in 2020, FDI rules were amended to curb Chinese investments. And production-linked incentives were launched to boost local production of goods heavily imported from China.
Why have these measures not worked?
There is no easy fix. No other country makes goods across a wide range of industries at a scale and price like China. A growing economy like India needs to strike a balance. In a number of sectors like renewable energy, electronics and EVs, Indian industry lacks technology and scale to compete with China. Curbing imports in such cases would mean burdening the consumer with high-priced, globally uncompetitive products. PLI schemes, where drafted well, should show results, but that’s only in the medium term.
