Why in the News?

India’s imports from China crossed $101 billion in 2023-24 from about $70 billion in 2018-19.Also, China’s share of India’s industrial goods imports has risen from 21% to 30% over 15 years.

 According to the Global Trade Research Initiative (GTRI), which released the above-mentioned data, Chinese imports to India will rise sharply in coming years.

What’s in Today’s Article?

• About India – China Trade Relationship (Statistics, Reasons for Deficit, Bilateral Investments, etc.)
• News Summary (GTRI’s Report’s Highlights)

India – China Trade Relationship:

• Since beginning of the last decade, bilateral trade between the two countries recorded exponential growth.
• From 2015 to 2022, India-China bilateral trade grew by 90.14%, an average yearly growth of 12.87%.
• In 2022, the overall trade with China increased by 8.47% year on year to reach $ 136.26 billion, crossing the $ 100 billion mark for a second time in a row.
• Trade Deficit:
  • The trade deficit came at $101.28 billion, in China’s favour, as India’s imports from China witnessed an increase by 118.77% to reach $118.77 billion.
  • Meanwhile, India’s exports to China decreased by 37.59% year on year to reach $17.49 billion.
• Reasons for India’s Trade Deficit w.r.t. China:
  • The growth of trade deficit with China could be attributed to two factors:
    • Narrow basket of commodities, mostly primary, that we export to China and
    • Market access impediments for most of our agricultural products and the sectors where we are competitive in, such as pharmaceuticals, IT, etc.
  • Our predominant exports have consisted of iron ore, cotton, copper, aluminium and diamonds/ natural gems.
  • Over time, these raw material-based commodities have been over-shadowed by Chinese exports of machinery, power-related equipment, telecom equipment, organic chemicals, and fertilizers.
• Bilateral Investments:
  • According to the Ministry of Commerce of China, Chinese investments to India in the year of 2021 was $63.18 million.
  • On the other hand, Indian investment into China for the year 2021 was $6.32 million.

Other Economic & Commercial Issues Between India and China:

• Cooperation in the Petroleum Sector:
  • India and China are working on the areas of cooperation in the petroleum sector to leverage upon the sheer size of the market of two countries.
  • The Petroleum Secretary visited Beijing in October 2018 followed by visit of Vice Minister of NEA to New Delhi in February 2019 and September 2019.
  • Constitution of a JWG and draft MOU on cooperation is under consideration.
  • However, there has been no progress on this since onset of COVID-19.
• Double Taxation Avoidance Agreement (DTAA):
  • India and China signed the DTAA on 18 July 1994 and the Agreement came into force on 21 November 1994.
  • Both the countries agreed to revise the DTAA in its entirety and the revised DTAA was signed in May 2018.
• Social Security Agreement:
  • With the steady increase in number of personnel/professionals that are being employed both in India and China.
  • The Social Security Agreement assumes important role.
  • India shared a draft SSA to Chinese side in October 2016.
  • However, there is a divergence as far as ‘Totalisation’ clause is concerned.
• Bilateral Investment Treaty:
  • India has sent notice to China to terminate the Bilateral Investment Promotion Agreement and proposed initiation of negotiations on Bilateral Investment Treaty.
  • Subsequently, India has taken a position that instead of signing a separate BIT with China, we may cover this under the chapter on Investment in RCEP.
  • However, following India’s decision to not join the RCEP, the issue has not been taken up with the Chinese side.

India’s imports from China crossed $101 billion:

• The Global Trade Research Initiative (GTRI), a think-tank, has recently published a report discussing India’s Trade Relationship with China.
• As per the report. India’s imports from China crossed $101 billion in 2023-24 from about $70 billion in 2018-19.
• China is the top supplier in eight major industrial sectors, including machinery, chemicals, pharmaceuticals, and textiles.
• India’s total merchandise imports stood at $677.2 billion in 2023-24, of which 15% or $101.8 billion worth goods were sourced from China.
  • Of these, $100 billions of imports were in major industrial product categories, amounting to 30% of such imports, and that share stood over 70% for some products.
  • Fifteen years ago, China’s share of the same goods’ imports was 21%, the study said.
• China also accounted for 29.2% of chemicals and pharmaceuticals imports into India, 25.8% of plastic product imports and 23.3% of automobile sector inbound shipments.
• A lower dependence on China was seen in the case of iron, steel and base metal imports, with just 17.6% share of inflows coming from the neighboring nation.
• The report suggests that Chinese imports will continue to rise sharply in the coming years.

Strategic Implications of This Dependency:

• The strategic implications of this dependency are ‘profound’ and affects not only economic but national security dimensions.
• This is imperative not only to mitigate economic risks but also to bolster domestic industries and reduce dependency on single-country imports, especially from a geopolitical competitor like China.
• As per the study, India had exported $10 billion worth of goods to China in 2005, and enjoyed a trade surplus with its neighbor between 2003 and 2005.
• After 2005, Chinese goods dominated trade flows, steadily magnifying the trade deficit for India.