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Balancing trade with China: More Chinese investment, taking advantage of local production incentives

China return as India’s largest trade partner during FY20-21 has surprised many. Since the outbreak of Covid-19, efforts to reduce reliance on Chinese products, many felt, would show up in bilateral trade figures through lower imports, and a smaller trade deficit. The expectations haven’t materialised. This isn’t surprising at all.

During April-December 2020, India ran trade deficits with 19 out of its’s top 25 trade partners. Some of these were due to large crude oil imports. China is not a source of crude oil imports for India. Nor is it a source of gold imports, which is another major import category for India. But China overwhelmingly dominates India’s non-oil, non-gold import basket. This has been so for several years. The Covid 19 pandemic and associated developments, including geopolitical ones, haven’t changed China’s preeminence as India’s major source of non-oil, non-gold imports. Along with China, India sources these imports from East and Southeast Asia and Europe, too. This shows up in its trade deficits with Germany, Malaysia, Singapore, Korea, Japan, Thailand and Indonesia.

However, the sizes of these deficits are not comparable with that of China. On the whole, in India’s total trade of $462.7 billion during April-December 2020, its imports ($261.4 billion) exceeded its exports ($201.3 billion) by more than $60 billion. The deficit of $30 billion with China was around half of India’s total trade deficit. Clearly, no substantive change has taken place in the character of India’s trade with China!


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