Wednesday, 09 Oct, 2024
India's exports of a variety of commodities to China have increased significantly. Image Source: IANS
Imports from China have gone up from $65.2 billion in FY 2019–20 to $101.7 billion in FY 2023–24.
The calls for attracting more Foreign Direct Investment (FDI) have been increasing by the government experts and economists in recent times in order to cut down imports from China. The idea behind pulling more FDI from China is that it will bring new technologies to India anc can help New Delhi lower its imports from China. Without naming China, Arvind Virmani, one of the members of India’s apex think tank NITI Aayog stated that in order to start producing these goods domestically and reduce their imports, India should look into establishing factories in joint ventures (JVs) with companies from nations that export a lot to India.
Arvind Virmani, former chief economic adviser to the government of India and executive director of the IMF said, “We don't need to mention the country; everybody knows that virtually, there's over-dependence on one country for manufacturing, which is kind of taking over global manufacturing for everyone. So, every country in the world is talking about de-risking and decoupling. I think of it as de-monopolisation. Monopolies are not good for the consumer.
Virmani added, “Under these types of joint ventures, only goods that India cannot import from any other nation than its monopolising trading partner or that it does not currently produce domestically could be considered eligible.”
Overtaking the US, China became India's largest trading partner in the fiscal year 2023–2024. The total value of bilateral commerce between India and China hit a record $118.4 billion, with imports from China being $101.7 billion, up 3.2 percent, and exports from India valued at $16.6 billion, up 8.7 percent. India still has a large trade deficit with China even with the volume of commerce being robust. The trade deficit dropped from $100 billion in 2022 to $99.2 billion in 2023. The total trade deficit over the last six years has surpassed $387 billion. The ongoing disparity in trade underscores India's reliance on Chinese imports, especially in critical industrial domains.
India's exports of a variety of commodities to China have increased significantly. Iron ore, cotton yarn, textiles, handloom goods, fruits, vegetables, spices, and fabrics are among the main export commodities. 90 major commodities were shipped to China in 2023–2024, making up 67.7 percent of India’s total exports to that nation. In the meantime, China is India's main source for a variety of industrial goods. Parts for cellphones and smartphones, computers, laptops, and industrial inputs including plastic, iron, and steel are among the main imports. 15 percent of all goods imported by India in FY 2023–2024 came from China. Of India's net imports, 38.4 percent are from China; 39.7 percent are machinery imports; 43.9 percent are from electronics, telecom, and electrical equipment; 26.8 percent are from chemicals and pharmaceuticals; and 26 percent are automobile imports.
Source: Ministry of Commerce and Industry
Imports from China have gone up from $65.2 billion in FY 2019–20 to $101.7 billion in FY 2023–24. The trade gap between China and India increased to $85 billion in the most recent fiscal year from $48.6 billion in FY 2019–20 due to the rise in Chinese imports. This demonstrates how India's reliance on China is expanding in terms of importing necessary commodities and services across key industries.
The trade deficit in 2013 was estimated to be $35 billion, with $51 billion in imports and $16 billion in exports coming from China. The deficit increased steadily between 2013 and 2017, reaching a high of around $60 billion in that year. India's rising reliance on Chinese electronics, machinery, and intermediate items for its expanding manufacturing sector was the driving force behind this. In 2020, the deficit decreased slightly as a result of India's attempts to reduce imports by boosting domestic production through programs like "Make in India." In spite of these initiatives, the deficit continued to be significant, averaging between $50 and 55 billion per year. Global supply networks were disturbed by the COVID-19 epidemic, which changed the dynamics of trade. China's exports to India continued to be robust despite these delays, especially in the areas of medicines and medical supplies.
Among the world's largest and fastest-growing industries is the electronics sector. India's electronics industry has grown significantly in the last few years, with the country producing $101 billion worth of electronics in 2022–2023 compared to $29 billion in 2014.–15. The industry makes up around 3.4 percent of India's GDP. Still, 55.3 percent of the market for electrical goods is met by imports. 40 percent of India's total imports of electronics come from China. Apart from electronics, India is heavily dependent on China for imports of machinery, Active Pharmaceutical Ingredients (APIs), automotive components and plastics.
The Government of India has taken a number of steps to cut down imports from China and boost domestic manufacturing. One of the major steps taken by the government was the launch of the Production Linked Incentive (PLI) scheme in the year 2020. The PLI scheme was designed to increase employment and import substitution while also increasing indigenous industrial capacity. It initially targeted three industries- Mobile and allied Component Manufacturing, Electrical Component Manufacturing and Medical Devices. It was later extended to 14 sectors. Under the PLI scheme, domestic and foreign companies receive financial rewards for manufacturing in India, based on a percentage of their revenue over up to five years.
The 14 sectors are mobile manufacturing, manufacturing of medical devices, automobiles and auto components, pharmaceuticals, drugs, specialty steel, telecom & networking products, electronic products, white goods (ACs and LEDs), food products, textile products, solar PV modules, advanced chemistry cell (ACC) battery, and drones and drone components.
One of the major successes of the PLI scheme was decrease in imports and increase in exports of mobile phones. In FY 2017-18, mobile phone imports were $3.6 billion, while exports were a mere $334 million, resulting in a $3.3 billion trade deficit. In FY 2022-23, imports reduced to $1.6 billion, while exports surged to nearly USD 11 billion, yielding a positive net exports of $9.8 billion.
Apart from the PLI, the government has launched a number of schemes across all the major sectors for substituting imports and expanding the domestic production in the country. Apart from this, the state governments also provide a number of incentives to the companies for manufacturing. But looking at the increasing imports from China and considering the strategic implications for economy and national security due to the complex nature of bilateral relationship between New Delhi and Beijing, India must explore new ways of minimising the imports from China and diversify its imports and boost domestic production.
