Trade deficit narrowing with China

Exim Bank is in a position to facilitate Indian entities aiming to enter into China market, says official

Hyderabad: India’s exports, which are highly responsive to changes in global slowdown, proved susceptible to the ensuing supply disruptions during the pandemic outbreak.

During January-October 2020, India’s exports to China increased to $15.8 billion, compared to $14.1 billion recorded during January-October 2019, witnessing a growth of 12.5 per cent.

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While India’s exports of commodities such as petroleum products, marine products, organic chemicals, machinery and electronic equipment to China witnessed a declining trend, its exports to commodities such as iron and steel and ores, slag and ash witnessed a sharp jump.

There has been a brief period of decline in India’s exports to China, however, mostly during the months of March and April in 2020.

“On the other hand, India’s imports from China have witnessed sharp fall during the pandemic. During January-October 2020, India’s imports from China fell by 19.5 percent to $46.9 billion, compared to $58.2 billion recorded during the corresponding period of the previous year. Almost all the major commodities imported from China have witnessed a decline,” David Sinate, chief general manager, Research & Analysis, India Exim Bank, told Telangana Today.

He added, “India and China are two of the largest economies globally. At the same time both the countries are strong trade partners with huge market potential. India Exim Bank is in a position to facilitate and support Indian entities aiming to enter into Chinese markets, through its wide ranges of products and services.”

Bilateral trade pattern

The UN Comtrade data shows India’s trade with China witnessed a decline of 5.2 per cent in 2019 to settle at $85.7 billion from $90.3 billion in 2018, as against a positive growth witnessed in the previous year. A fall in India’s imports from China by 7.4 per cent outweigh the 4.7 per cent increase in India’s exports to China in 2019.

He noted, “The last two years witnessed narrowing of India’s trade deficit with China from $59.4 billion in 2017 to $57.3 billion in 2018 and further to $51.1 billion and 2019.”

Economic diversification

The impact of the Covid-19 pandemic on the globalisation process has resulted in severe supply chain disruptions across countries, forcing many nations to re-think trade ties and the importance of economic diversification.

Nations have been contemplating changing their geographies of operations. Moreover, the recent events have also resulted in several countries adopting more inward-looking policies. India has also launched the ‘Atmanirbhar Bharat’, which essentially would strive to make India a more self-reliant economy.

Irrespective of these sentiments, import dependence of India and several other countries especially on China is quite high. Analysis of India’s imports by end-use (capital, intermediate, and consumer) indicates that nearly 79 per cent of the imports by India in 2019 were in the nature of intermediate goods, indicative of the dependence of India’s manufacturing sector on imported intermediates.

The high import intensity in the manufacturing sector also translates into a higher level of foreign value-added content in India’s manufacturing exports (27.3 per cent). The import intensity of exports is especially high in case of basic metals (38 per cent), fabricated metal products (31.4 per cent), computer, electronics and optical products (36.8 per cent), electrical equipment (36 per cent) and machinery and equipment (30.8 per cent).

Global value chains

Nearly 70 per cent of international trade involves global value chains (GVCs), as services, raw materials, parts, and components cross borders – often numerous times. Linkages with GVCs will therefore necessarily entail imports of certain components and intermediates.

India has been increasingly encouraging higher value-added activities within the country. While import substitution can clearly lead to an increase in the output and employment in the country, it should be based on cross-cutting strategies to incentivise the indigenisation of higher value-added activities in the production process and engender organic growth in the manufacturing sector.

In the case of countries such as China, with which India has a significant trade deficit, reduction in the level of import dependence from such partner countries and boosting exports from India would entail greater focus on enhancing India’s integration into the GVCs, and enabling domestic manufacturers to specialise across various stages of production.

Near-term projection

David Sinate said, “Going by the recent trends in annual and monthly trade in 2020, we expect a steady increase in India’s exports to China. Growth of India’s imports from China is expected to decline though not at a huge level in the medium-term, especially in the context of the recent steps undertaken by Government of India to improve efficiency of Indian manufacturing sector, along with the realisation to undertake conscious efforts to collaborate with technology-rich countries through joint ventures in various sectors.”

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