INDIA'S TRADE WITH CHINA

1. Context 

2. Key takeaways

• As per the IBEF website, trade between India and China in FY24 reached $118.40 billion, reflecting a 4% increase from $113.83 billion in FY23.

• According to data from the Global Trade Research Initiative (GTRI), China reclaimed its position as India's largest trading partner in FY24, surpassing the United States after a gap of two years. During this period, China accounted for 15% of India’s total imports. Out of India’s total imports worth $675.42 billion, imports from China amounted to $101.74 billion.

• In FY24, China contributed 15.06% to India’s total imports. India’s global imports stood at $675.42 billion, with Chinese imports comprising $101.74 billion.

• There is a prevailing opinion in India that engaging in a structured dialogue with China to normalize trade relations could send a strategic signal to the United States and serve as a balancing measure. Discussions are ongoing regarding the possibility of easing some trade and investment restrictions imposed after the 2020 Galwan conflict.

• Despite high trade volumes, China ranks only 22nd in terms of Foreign Direct Investment (FDI) equity inflows into India, with cumulative investments of $2.5 billion from April 2000 to September 2024. While bilateral trade has expanded significantly, investment growth has lagged. Reports suggest that China is keen to increase investments, and India may show some flexibility in this regard.

• While trade between the two nations has surged since 2020, India faces its largest trade deficit with China. The trade imbalance has been widening annually, surpassing $83 billion in 2023. This deficit is primarily due to India's limited export basket—dominated by primary commodities—and the lack of market access for various Indian goods, including agricultural products, pharmaceuticals, and IT/ITeS, where India has a competitive edge.

• The Economic Survey 2023-24 recommended that India encourage investments from China while limiting imports of finished goods that offer minimal scope for domestic value addition.

3. India's trade with China 

• Till 20 years ago, China figured at the 10th position (2001-12) or lower (12th in 2000-01; 16th in 1999-00; 18th in 1998-99).
• However, from 2002-03, it started an upward march and became India's top trading partner in 2011-12.
• In the next year, the UAE dislodged it to second place.
• However, China bounced back and again became India's top trading partner in 2013-14 and remained there till 2017-18.
• For the next two years (2018-19 and 2019-20), the US was at the top but in 2020-21, China again became India's number trading partner.
• While China and the US have both been India's top trading partners in recent years, there is a big difference between the trade with the world's two largest economies.
• While with the US, India had a trade surplus of $ 32.85 billion during 2021-22, with China, it had a trade deficit of $ 73.31 billion, the highest for any country.
• India's trade deficit with China during 2021-2022 was double the previous year's level ($44.02 billion) and it was an all-time high.

4. India's trade deficit

• India's trade deficit with China has increased from $1 billion to $73 billion in the past 21 years.
• Data show that imports from China have skyrocketed since the beginning of this century from $ billion in 2001-02 to $ 94.57 billion in 2021-20.
• However, during this period, India's exports to China have increased at a snail's pace from about $ 1 billion to $21 billion.
• Due to this surge in imports, India's trade deficit with China increased from about $1 billion in 2001-02 to $ 73 billion.
• It is expected to rise further this year. 
• During the first seven months (April-October) of the current financial year (2022-23), India's trade deficit with China stood at $ 51 billion, which was 39 per cent higher than the figure ($37 billion) recorded in the corresponding period of the last fiscal.
• China alone accounted for over one-third of India's total trade deficit ($ 191 billion) during 2021-22.
• The rising gap between imports and exports from China is evident from the fact that two decades ago, India's imports accounted for about 60 per cent of the total bilateral trade between the two countries, but now it is over 80 per cent.

5. India's Imports 

• An analysis of the trade data shows that the recent spike in trade with China is due to an unprecedented surge in imports from the neighbouring country in recent years.
• The monthly figure for imports from China, which hit a low of $ 3.32 billion in June 2020 during the Covid lockdown, started rising soon after the easing of restrictions and rose to $ 5.58 billion in the following month (July 2020).
• Since then, it continued rising and scaled a new peak of $ 10.24 billion in July this year.
• The figure for average monthly imports from China has increased from $ 5.43 billion in 2020-21 to $ 7.88 billion in 2021-22.
• In the first seven months (April-October) of the financial year 2022-23, the figure reached $ 8.61 billion.
• In the pre-Covid times, the average monthly import figure stood at $ 5.43 billion during 2019-20.
• For the first time since June 2020, there has been a slight dip in imports from China in October 2022, with the figure coming down to $ 7.85 billion from $ 8.69 billion a year ago.

5.1.  Commodities that India imports from China

• During 2021-22, 15.42 per cent ($94.57 billion) of India's total imports ($613.05 billion) came from China.

1. Electrical machinery and equipment and parts thereof;
2. Sound recorders and reproducers, television image and sound recorders and reproducers and parts
3. Nuclear reactors, boilers, machinery and mechanical appliances and parts thereof
4. Organic chemicals
5. Plastic and plastic articles and 
6. Fertilisers.

• A look at the item-wise list of imports shows that the most-valued Chinese item in the Indian import basket was the personal computer (laptop, palmtop etc), which accounted for $5.34 billion in 2021-22.
• It was followed by "Monolithic integrated circuits digital ($4 billion), lithium-ion ($1.1 billion), solar cells ($ 3 billion) and urea ($1.4 billion).
• As far as the US is concerned, India imported petroleum crude, coking coal, LNG, diamonds, almonds, turbo-jets, etc.

6. India's exports to China

1. Ores, slag and ash ($ 2. 5 billion);
2. Organic chemicals ($ 2.38 billion), mineral fuels, mineral oils and products of their distillation, bituminous substances, mineral waxes ($1.87 billion)
3. Iron and steel ($1.4 billion) 
4. Aluminium and articles of thereof ($1.2 billion) and 
5. cotton ($1.25 billion).
6. Among single items, light Naphtha ($ 1.37 billion) was India's most valued export item to China during 2021-22.

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