According to data released by Chinese customs, the trade between India and China touched an all-time high of $135.98 billion in 2022. However, New Delhi’s trade deficit with Beijing also crossed, the $100 billion mark for the first time.

 

Trade relationship between India and China

  • China is India’s largest trade partner for the year 2022.
  • India’s trade deficit concerns with China are two-pronged.
      • The actual size of the deficit.
      • The imbalance has continuously been widening year after year.
  • Analysts have seen India’s growing imports from China as both a worry, reflecting continued dependence for a range of key goods, but also, to some extent, as a positive indicator of the Indian economy importing more intermediate goods.

 

Reasons behind widening trade deficit

  • Gap between domestic production and demand — India imports goods to fill the gap between domestic production (supply) as well as consumer preferences (demand) for various products.
  • Export of raw material while importing finished goods —
    • India’s predominant exports have consisted of raw materials like — iron ore, cotton, copper, aluminium and diamonds/ natural gems.
    • However, majority of Chinese exports consists of machinery, power-related equipment, telecom equipment, organic chemicals and fertilisers.
    • This resulted in decline in total value of Indian exports to China.
  • Indian pharmaceutical industry is heavily dependent on APIs from China — India’s $42 billion pharmaceutical industry, imports about 68% of its active pharmaceutical ingredients (APIs) from China.
  • Other factors —
    • A narrow basket of commodities, mostly primary items, that India exports to China.
    • Market access impediments for most Indian agricultural products and competitive markets, such as IT/ITES, etc.
  • India cannot completely end its strategic dependence on the import of most crucial products from China. It can, however, diversify this dependence by working with other countries like US, Japan, South Korea etc.