Chinese cheer for Indian exports

Biswajit Dhar | Updated on March 04, 2019

India’s trade deficit against China has been balooning overth years   -  REUTERS

India’s bilateral trade deficit with China has shrunk this year, though Indian exports are still dominated by primary products

Amidst growing concerns about the trends in India’s export growth over the coming months due to perceptible signs of a cooling global economy is an unexpected area of cheer. Dynamics of India’s trade with its largest trade partner — China — are showing surprisingly good results in the current fiscal.

In the first nine months of 2018-19, India’s exports to China have grown by an impressive 34 per cent (as against less than 10 per cent overall), while imports from its northern neighbour have declined by nearly 4.5 per cent (as against an increase of 14 per cent overall).

This combination of positive export growth and negative import growth is a rare occurrence in India-China trade, having occurred only twice earlier since the middle of the previous decade. One of these included 2009, the year in which the Chinese economy had felt the impact of economic downturn.

As a result of the export upswing being witnessed in recent months, India’s trade deficit with China during April to December 2018 was $41.3 billion, down from nearly $47 billion in the corresponding period in the previous fiscal. This is the steepest decline in trade deficit for the first nine months of any financial year.


India thus seems poised to register the sharpest decline in its trade deficit with China for an entire financial year. This would also reverse the rising trend in trade deficit, which had touched an all-time high of $63 billion in 2017-18. What was remarkable about this figure of trade deficit is that it accounted for nearly 40 per cent of India’s overall trade deficit.

Over the past two decades, India-China trade has changed drastically. At the turn of the millennium, China was the outside the list of top five import sources for India, having a share of less than 3 per cent in India’s total imports. In 2000-01, India’s imports were $1.5 billion and exports were $831 million, and the trade deficit was a modest $671 million. Imports from China recorded dramatic increase from 2003-04, up from $4 billion to $32 billion in 2008-09. By 2014-15, imports from China had exceeded $60 billion, and in the previous financial year, imports were over $76 billion.

On the other hand, India’s exports to China remained extremely sluggish. From $3 billion in 2003-04, exports reached $10 billion in 2007-08. Indian exports peaked at $18 billion in 2012-13, but five years thereafter it could export no more than $13 billion. Consequently, the trade deficit expanded drastically to over $63 billion in 2017-18.

Electronics, pharma dominate

More than the increase in imports, it is the composition of India’s trade with China that is of real concern. Imports from China are primarily in two commodity groups — electrical and electronic equipment and pharmaceuticals.

In 2017-18, almost 60 per cent of India’s import requirements of electrical and electronic equipment were met by China, as were more than 75 per cent of the active pharmaceutical ingredients, the raw material used by India’s generic pharmaceutical industry. China supplied more than 80 per cent of the antibiotics imported by India, and well above 60 per cent of electronic products and components. Thus, some of the key sectors of the Indian economy are critically dependent on China.


In sharp contrast, India’s top exports were mostly intermediate products and raw materials. These included cathodes, petroleum oils, intermediate products for the producing films and plastics and iron ore and concentrates.

The broad sectoral trends of the exports of China and India show that for the latest year, manufactured products constituted 55 per cent of India’s non-oil exports to China, while the corresponding figure for China was as high as 95 per cent. This implies that primary commodities had a significant share of India’s exports, which is consistent with China’s strategy to source raw materials from its trading partners.

Now that India’s exports have jumped by more than a third in April-December 2018, as compared to the corresponding period in the previous year, has the commodity composition also changed in India’s favour?

The product group contributing the most to the increased exports to China was petroleum products. In terms of volume, the increase was by over two and a half times during April-December 2018 as compared to the previous year. Favourable movement in product prices in most of 2018 resulted in a three-fold increase in value of exports.

Augmentation of Reliance Industries’ aromatic production capacities over the past couple of years has positioned the company as one of the major producers of paraxylene, orthoxylene and benzene (the building blocks for polyester fibres and several other petrochemical intermediates). This increased production has found its way into the export market; China emerging as one of the major destinations.

Among the group of products pushing India’s exports to China in the recent months are two primary products — fish and crustaceans and raw cotton. Exports of both these product groups in the current fiscal increased by at least three-fold as compared to 2017-18.

Although India’s exports to China have registered impressive increase, and have also contributed to the lowering of the trade deficit with its largest trade partner, there remains a significant area of concern. This stems from the fact that the recent export trends merely reinforce India’s role as a supplier of raw materials and intermediates to China.

Thus, in the absence of adequate manufacturing facilities that could have helped in processing the increased production of raw materials and intermediates, these products are being exported and India is foregoing domestic value addition.

With the government failing in its attempt to incentivise “making” in India, increased exports to China should, therefore, be seen as a stream of opportunities missed for creating jobs in the country and adding additional incomes in Indian hands.

The writer is Professor, Centre for Economic Studies and Planning, Jawaharlal Nehru University

Published on March 04, 2019

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