Post-independence, India’s progress on many macroeconomic parameters have been more than satisfactory. However, the rising trade deficit owing to higher imports remains a major worry for the government. India’s position on merchandise export needs a serious boost to reverse the trend. The trade deficit widened from $135.8 billion in 2013-14 to $162.2 billion in 2017-18. China accounted for about 39% of India’s trade deficit in 2017-18. India’s total trade with China reached $89.6 billion in 2017-18, with Chinese export soaring to $76.27 billion. China enjoys an ever-rising trade surplus with most of the countries, including India.
Today, Chinese traders find the Indian market more liberal and open, and hence their products are flooding our local market. Conversely, Indian traders are facing challenges to penetrate the Chinese market; total exports to China in 2017-18 stood at $13.33 billion lower than $14.82 in 2013-14. During April-June 2018, India exported goods valued at $3.97 billion to China compared to imports of $17.37 billion.
On account of the favourable factors of the endowment, the Chinese manufacturing sector achieved global competitiveness. China is rapidly transitioning from ‘supplier of cheap products’ to “supplier of global brands”. Companies like Lenovo, Alibaba, Huawei, Haier, Xiaomi, and Cheetah Mobile are building brands beyond their home turf.
Today, China is the largest supplier of solar modules or components to India. Prime Minister Modi’s thrust on solar energy catapulted the domestic solar installations. Domestic production of solar cells, modules or components is inadequate to meet the unprecedented surge in demand, hence heavy import dependence on China. Solar cells or component imports from China jumped from $673 million in 2013-14 to $3.6 billion in 2017-18, over five-fold growth. Over-dependence on China for solar components is likely to rise in the future until domestic players like Vikram Solar and Adani compete well with the Chinese counterparts.
At the moment, Chinese manufacturers, which offer cost advantages, are preferred over domestic producers in India. The question that arises is who wins the trade battle? Simple calculations on trade indicate that China is winning the trade battle not only with India but also with the US. The trade war between US and China means Chinese traders will target the Indian market to compensate for any loss of export to the US.
Is India ready to counter the excessive Chinese exports? Already, domestic players in various sectors are under severe price pressure from “Made in China” supply. Make in India initiative of the Modi government is still to deliver the desired results. At the moment domestic competitiveness and market efficiency measures are inadequate. In the absence of market-driven competitiveness, trade measures are adopted within the framework of WTO which often leads to retaliation and conflict.
India must find ways to cut down imports of (1) nuclear reactors, boilers, machinery and mechanical appliances; parts thereof; (2) electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts; (3) organic chemicals; (4) fertiliser; and (5) plastic articles from China. These products have contributed 69% of total imports from China in 2017-18.
Indian pharmaceutical industry is capable of competing with the Chinese manufacturers. However, prevailing stringent regulatory and time-consuming approval process in China complicates the market access. The China-US trade war may open up the opportunity for Indian agro products shipment to China. However, sanitary and phytosanitary measures imposed by China will create bottlenecks for Indian agro-exporters. China’s imposition of 25% duty on US imports of US cotton opens up opportunities for Indian exporters. Further, export of IT products and services to China should be expanded.
China must realise that India will not be able to sustain rising bilateral trade imbalance, so it must take necessary actions to address the issue on a priority basis.