Addressing dependence on China as trade rises (2024)

If the recent data are any indication, India-China trade relations are at a historical high, completely reversing the frigidity that had set in following Beijing’s incursions into Ladakh during May 2020 and the sacrifices of the soldiers to maintain our country’s territorial integrity. Consequently, economic relations between the two neighbours reached the lowest point since the 1962 war. The Government of India strongly responded to these developments by taking firm steps to downsize the country’s economic relationship with its largest trade partner. Investments from China and Hong Kong were subjected to enhanced scrutiny and a sizeable number of Chinese apps were banned. Citizens’ groups complemented the government’s efforts by calling for a boycott of Chinese products. All these developments seemed to resonate well with Atmanirbhar Bharat Abhiyan and the call “vocal for local”. The government initiated several measures aimed at decoupling from China and reducing the high level of dependence of several key sectors like pharmaceuticals and electronics on the “factory of the world”.

However, less than a year and a half following the announcements and the initiatives of the government to decouple from China, India’s trade links with its northern neighbour have increased like never before. Data released by the Department of Commerce show that two-way trade between China and India during calendar year 2021 was over $114 billion. What is more significant is that India-China trade has crossed the three-figure mark for the first time, aided by a 47% jump in trade values from a year earlier. Yet another feature of bilateral trade in 2021 was that India’s imports from China were close to $88 billion, and this was higher than the annual value of trade between the two countries in the past years. India’s exports, too, were buoyant, increasing by more than 21% over the 2020 numbers, well above the levels at which they had stagnated in the previous decade. Importantly, India’s trade deficit expanded by nearly 63% to reach $65 billion.

Chinese official sources show that bilateral trade was considerably higher than that reported by the Department of Commerce. According to the General Administration of Customs (GAC) of the People’s Republic of China, total trade between the two countries was $127 billion in 2021, higher by 45% over 2020. The GAC reports that China’s imports from India had increased by nearly 35% to reach $28 billion in 2021, while its exports were close to $100 billion. These differences in figures notwithstanding, the level of bilateral trade in 2021 highlights the point that India now has a two-way dependence on its neighbour; China is the largest source of India’s imports and the third largest destination of its exports, only a notch below the UAE.

The key issue is to make an initial assessment of the manner in which bilateral trade is benefiting the two nations, by analysing the commodity composition. Currently disaggregated data for India-China trade are available until November 2021 and using these figures, a fair assessment can be made of the relative benefits to the two partner countries.

The drivers of India’s exports to China since 2019, the immediate pre-pandemic year that can also be considered as “normal”, were iron ores and concentrates, iron and steel products, unwrought aluminium as well as non-basmati rice. Besides these primary products and intermediates, India was able to increase its exports of organic chemicals and telecommunication products; the latter product group registered an increase in exports of over 300% between 2020 and 2021. Thus, despite the long shadow of the pandemic on India’s manufacturing industries, one of the technology-intensive sectors was able to expand its market in China, which is known for imposing artificial barriers on imports.

Boosting India’s imports from China were two major product groups, namely electronic goods, including consumer electronics and telecommunication products, and active pharmaceutical ingredients. Most of India’s imports, which were valued at a billion dollars or more in 2021, were from these two groups. This implies that India’s dependence on China in two strategic areas has continued unabated.

Over the past two years, the Government of India has initiated significant measures to shore up the country’s manufacturing sector through the Production Linked Incentive scheme. With imports from China increasing to record levels, the government and industry would have to carefully consider next steps that they must take in unison to address India’s China-dependence syndrome.

India-China Trade (in US $ billion)

Source: Department of Commerce, India

China-India Trade (in US $ billion)

Source: General Administration of Customs, China

Biswajit Dhar

Professor, Centre for Economic Studies and Planning, School of Social Sciences, JNU

No stories found.