Raw materials, minerals prop up India’s exports to China

Over recent years, India has witnessed a notable increase in exports to China, albeit with persistent trade deficits. The surge in imports from China, primarily driven by demand for critical materials and components, has raised apprehensions about India's economic dependency and its implications on domestic manufacturing and trade sustainability.

1: Trade Statistics and Trends

• India-China Trade Dynamics: India's exports to China saw a modest increase of 8.74% from $15.33 billion in FY23 to $16.67 billion in FY24. Conversely, imports from China rose by 3.29% to $101.75 billion in FY24 from $98.51 billion in FY23, contributing to a significant trade deficit. Despite a marginal narrowing, this trade imbalance remains a cause for concern.

2: Dimension- Export Profile

• Commodity Composition: India's exports to China primarily consist of raw materials and minerals. These include items such as iron ore, cotton yarn, cotton, quartz, unwrought aluminium, and sanitary items.
• Stagnant Growth: Ajay Srivastava, founder of Global Trade Research Initiative (GTRI), highlights that India's exports to China have not seen substantial growth, remaining lower than FY19 levels.
• Impact of Import Substitution: Despite efforts to enhance export competitiveness, India's exports to China continue to be overshadowed by imports, indicating a need for strategic measures to promote domestic production.

3: Dimension- Import Profile:

• Surging Demand: Imports from China have steadily increased, reaching $101.75 billion in FY24 from $70.3 billion in FY19. This surge is attributed to the growing demand for materials essential for sectors such as solar energy, electronics, and electric vehicles.
• Concerns over Dependency: India's reliance on Chinese imports is expected to rise further, posing challenges to domestic manufacturing and economic resilience.
• Sectoral Analysis: Critical sectors such as electronics, pharmaceuticals, and white goods heavily depend on imports, necessitating targeted policies to reduce dependency and enhance self-sufficiency.

4: Dimension- Impact on Trade Deficit

• Magnitude of Deficit: Over the past five years, India's trade deficit with China has exceeded $387 billion, indicating a significant reliance on Chinese imports and a persistent trade imbalance.
• Economic Implications: The widening trade deficit with China poses risks to India's economic stability, affecting factors such as currency valuation, current account balance, and overall growth prospects.
• Strategic Concerns: The disproportionate trade relationship with China raises strategic concerns regarding India's vulnerability to disruptions in the global supply chain and geopolitical tensions.

5: Dimension- Policy Response and Initiatives

• Diversification Efforts: India has been actively seeking to diversify its trade relationships and reduce dependence on China. Negotiations for free-trade agreements with major economies like the US, UK, Australia, and others are underway, with the aim of signing agreements with all major economies by the end of 2024.
• Promoting Domestic Manufacturing: In line with the 'Make in India' initiative, the government has implemented production-linked incentive (PLI) schemes across critical sectors to boost domestic manufacturing and reduce reliance on imports. These initiatives have shown some success, as evidenced by the decrease in mobile handset imports.
• Enhancing Export Competitiveness: Efforts to enhance export competitiveness through infrastructure development, technology adoption, and skill enhancement are underway to capitalize on emerging opportunities in global markets and mitigate the impact of trade imbalances.

Mains practice question

Q. Critically evaluate the role of free-trade agreements and production-linked incentives in reshaping India's trade landscape and enhancing its global competitiveness.