Economic ties are one of the biggest positive drivers of India-China relationship but the high imbalance of trade in favour of China remains a matter of concern. Discuss along with measures to reduce trade deficit for India. (15 marks)

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Economic ties are one of the biggest positive drivers of India-China relationship but the high imbalance of trade in favour of China remains a matter of concern. Discuss along with measures to reduce trade deficit for India. (15 marks)

Approach:

  • Introduce with India-China relationship
  • Make a note on facts about trade imbalance
  • Explain the reasons for trade deficit
  • Suggest measures to improve trade balance
  • Conclude appropriately

Model Answer :

India and China enjoy robust economic ties which have progressively increased over the years. China is among the top five trading partners of India. It has been hailed as among the biggest positive drivers of a relationship that is often beset with difficult political problems.

Trade imbalance:

In 2017-18, India’s exports to China touched $33 billion while imports were of $76.2 billion, leading to a huge trade deficit to India of about $43 billion. The large trade imbalance in favour of China, which imports from China much higher than Indian exports to China is a matter of much concern. Various factors causing this trade imbalance include:

  • China’s competitiveness in various sectors: China’s competitiveness in manufacturing across various sectors like manufactured goods and electronics cause them to flood India with cheap imports.
  • High logistics cost in India: India’s poor logistics and infrastructure, in terms of connectivity of efficiency of ports, insufficient warehouses etc. raise export costs and reduce competitiveness. In 2014 it cost $1,332 on average to export a container from India, compared with $823 to ship from China.
  • Barriers to services trade: Services trade between China and India remains small, with Indian powerhouse in IT and ITeS facing language barriers and various non-tariff barriers, including complex requirements for participating in contracts of Chinese state-owned enterprises (SOEs) and visa restrictions.
  • Trade barriers in China: China has high trade barriers for rice, meat, pharmaceuticals and IT products from India.
  • Non-tariff barriers: Farm exports, including bovine meat, as well as pharmaceutical exports from India face hindrances in the form of complex and opaque regulatory requirements.

Some measures to reduce trade deficit for India:

  • Greater market access: India is making efforts to seek market access for various Indian agricultural products, IT services, animal feeds, oil seeds, milk and milk products, pharmaceutical products etc.
  • Lower logistics costs: Programmes like Sagarmala and great investment in infrastructure including roads, freight corridors, power and warehouses are expected to bring down logistics costs.
  • Lowering barriers in China: Government of India has been taking continuous and sustained steps to bridge trade deficit by lowering the trade barriers for Indian exports to China.
  • Manufacturing in India: Other way to help eliminate the trade deficit is to get those manufacturering in China, including Chinese, to start making goods in India.

During the 11th session of India-China Joint Group on Economic Relations(JEG) in 2018, the Trade Ministers of two countries agreed to increasing bilateral trade between the two countries in a balanced and more sustainable manner. India must ensure this becomes a reality especially considering that China is under pressure already due to its trade war with China.

Subjects : International Relations