India has highest trade deficit with China, now it wants a plan to change that

To close India’s trade gap with China over time and align trading policies with the changing geopolitical landscape and potential dangers to secure supply chains, the government think tank NITI Aayog has launched a research. For the two studies on improving domestic manufacturing and lowering the trade imbalance with China, the Aayog has issued an invitation for proposals from consultants.

Additionally, since the conflict in Galwan in June 2020, there have been simmering tensions between China and India, which are reflected in the move.

“The centrality of China to lndia’s supply chain in certain industries raises dependency and vulnerability of the lndian supply chains and production networks particularly during crisis situations such as the COVID-I9 and geopolitical conflicts.

“The study would aim to develop a comprehensive action plan to bridge the trade deficit over time and align trading strategies with emerging geopolitical situation and potential risks to safeguard supply chains,” the Aayog said in a notice posted on its website.

The study’s terms of scope include examining current developments in India-China trade (at the product category level) to identify patterns of trade dependency and the underlying causes of such patterns.

In order to derisk India’s trade, the study will evaluate the supply chains of trade between India and China as well as supply chains that are analogous to trade between India and other Asian nations.

In order to expand exports to China, it would also look at product categories where India has a comparative advantage and a sizable market in China.

The NITI Aayog stated that in addition to lowering the trade deficit with China, the study should suggest important measures to increase local output and productivity in areas similar to the global economy in order to take advantage of changes in global supply chains.

“(The study should) analyse the type and quantum off foreign investment which may bridge the technology gap and utilise the abundant domestic manpower for competitive products. Provide recommendations to resolve the same,” NITI Aayog said.

The study would also need to look at issues about market access, regulatory ecology, non-tariff barriers, and tariffs for Indian exports to China.

In addition, it must provide ways for India to broaden its supply chain network, highlighting the industries to concentrate on, the incentives to provide, and the changes needed to reach the goal of drawing international supply chains to India.

In 2021–2022, India’s merchandise trade with the rest of the world exceeded USD 1 trillion. India had a merchandise trade imbalance of USD 191 billion during the year due to its USD 422 billion in exports and USD 613 billion in imports.

In 2021–22, China accounted for 38% (or USD 73.3 billion) of India’s merchandise trade imbalance. India had a trade imbalance of USD 263 billion in 2022–2023, with exports totaling USD 450 billion and imports worth USD 714 billion.

In 2022–2023, China accounted for almost 32% (USD 83.1 billion) of India’s merchandise trade imbalance. India’s trade deficit with China in 2022–2023 is the biggest among its major trading partners.

When the composition of exports and imports with China is examined, it is found that India imports capital goods from China the most ($47 billion in 2021), followed by intermediate goods ($30 billion), consumer goods ($9.4 billion), and raw materials ($1 billion), while it exports intermediate goods the most ($1 billion in 2021).

In terms of these four product categories, India and China had a trade imbalance in 2021: capital goods (USD 45 billion), intermediate goods (USD l9 billion), and consumer products (USD 6 billion).

The Indian Army said that “minor injuries to a few personnel from both sides” were the outcome of the conflict between Indian and Chinese forces on December 9, 2022, along the Line of Actual Control (LAC) in the Tawang sector of Arunachal Pradesh.

(With agency inputs)