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In the India-China relationship, the question of trade deficit

For more than a decade, India’s large trade deficit with China has been a growing concern. The focus of the issue, however, has largely been political. With the confrontation along the border and the pandemic leading to a campaign for self-reliance, the question of trading with a country that is also clearly a strategic adversary has gained renewed policy interest.

Final consumer goods are quite often, in public perception, (mis)understood as constituting the biggest chunk of Indian imports from China. While the absolute numbers definitely seem large, what do the facts suggest?

Based on the Broad Economic Classification categories, goods for final consumption, in 2020, accounted for 7.48% of imports from China. However, about 63% of imports were in the intermediate consumption category, which is defined as “goods and services used up in the course of production within the accounting period”. The import of capital goods comprised 16% of imports from China. As things stand, about 80% of imports from China are used in the production process.

Another finer level of analysis resorts to examining the trade in parts and components (P&C) — items such as blades, engines, electronic instruments, motors, which aggregate or supplement larger final goods such as gas turbines or mobile cranes. India’s share of imports in this category over the years has been fairly low and steady, hovering around the 10% mark.


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