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Widening China trade gap raises concerns

India's imports have shot up 5.7 times of exports in fiscal 2018 from 2.6 times in fiscal 2010

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Chinese incursions are not restricted to just Indian territory but extend to trade too.

Slowly, but systematically, trade balance between India and China has deteriorated over the last eight years as the former's imports have shot up 5.7 times of exports in fiscal 2018 from 2.6 times in fiscal 2010.

The last fiscal saw India's trade deficit with China expand 13.28% to $58.94 billion from $51.11 billion in the previous year. The year before that the gap between India's Chinese imports and exports was 2.99%.

If at all, it has doubled from $23.47 billion in 2009 to what it is now and constitutes around 38% of India's total trade deficit.

Experts on global trade told DNA Money that while the government was trying to negotiate with China to push up exports, the rise in Chinese imports was inevitable looking at their cost competitiveness and rapid growth in some sectors in India.

"Do we (India) have any choice? We don't have any choice," was the response of Ganesh Kumar Gupta, president, Federation of Indian Export Organisations (FIEO).

He attributed the surge in India-China trade imbalance to increase in imports of telecom components, pharma raw materials, LED, electronics components and other such items.

According to him, last few years have seen better acceptance of Indian exports in the Chinese market; "last year our exports were up around 40% and imports only 20%. Gradually, we are reducing the imports and exports will increase".

Though, not everyone is as complacent as Gupta. D K Srivastava, chief policy advisor, E&Y India, sees the swell in the trade deficit with China as a "matter of concern".

He suggested that, like the US, India should also retaliate by putting tariff barriers on finished goods to "neutralise" the cost advantage that Chinese goods currently have against local manufacturers.

"There is a case for putting anti-dumping measures in several ways including increasing tariff. At least those items that relate to primary commodity require action to be taken. They (government) have to examine commodity by commodity to try and reach a better trade account balance with China," said Srivastava.

He believes that India should take advantage of the trade war between the US and China by substituting US exports to China.

"We have a surplus with the US and deficit with China. So, with the US addressing the Chinese trade and China retaliating, there is some opportunity for India to substitute US exports into China," the EY economist recommended.

According to him, India needs to control rising trade deficit to achieve its potential economic growth, which was being dragged down by the contribution of net export remaining in the range of negative to zero for some time now.

Dhiraj Mathur, executive director, PwC, said Chinese imports have helped many sectors in India thrive. According to him, there is a joke among international trade experts that India's solar and LED programme was being "subsidised" by China.

And Gaurav Mathur, director sales, Trina Solar India, do not expect foreign imports of solar products to be totally done away with; "India will have to rely on foreign imports".

According to him, imported Chinese solar panel, cell or module were around 6-8% cheaper than domestically produced ones.

Trina's Mathur even went to the extent of saying that the government was being accommodative in allowing imports of solar goods into the country.

"Recently, anti-dumping duty was recommended (for solar panel, modules, etc) but it was not allowed. On the safeguard duty also the government is likely to favour us," he said.

Data on the ongoing anti-dumping investigations on the Directorate General of Trade Remedies website shows that around 20 of the 31 probes into anti-dumping involved Chinese companies or products from China.

PwC's Mathur said for reaching the ambitious solar power production target of 100 gigawatt by 2022, the government will have to balance between the creation of domestic capacity and swift ramp-up of capacity through imports and FDI.

"If the government wants domestic manufacturing to increase, they are going to have to look at tariff, anti-dumping duty, etc. If they want to ramp up for the solar mission then they have to stay away from anti-dumping duties. It's really a trade-off," he said.

It's not always that the government has to confront such a dilemma. In the case of apple, they banned Chinese imports in one stroke after finding them being infested with the pest.

Tarun Arora, director - finance and operations, IG International Pvt Ltd, told DNA Money that after the ban, his company imports over 1.7-2 lakh tonne of apples worth $200 million from "other locations except China".

However, PwC's Mathur feels that large trade balance with any country was not a worry as long as it can be funded for without getting hugely indebted.

"Large trade balance is okay as long as you can pay for it. So long as your current account balance is manageable and you can fund that deficit without getting indebted, it is fine. We are managing our fiscal deficit and current account deficit CAD well so far," he said.

...& ANALYSIS

  • Experts on global trade divided over it. Some say India does not have much choice when it came to widening trade deficit with China; others see it as a matter of concern and want the government to address it
     
  • $58.94 - India's trade deficit with China in fiscal 2017-18 over previous year
     
  • India-China trade imbalance due to increase in imports of telecom components, pharma raw materials, LED, electronics components and other such items
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