Why are India’s imports from China rising?

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Why are India’s imports from China rising?

  • Trade figures between India and China released last month showed imports have continued to surge in 2021, rebounding after a fall in trade in 2020 because of the pandemic.
  • The rising trade comes amid continuing tensions with China along the Line of Actual Control (LAC), where disengagement negotiations have been slow moving.

India-China trade

  • India’s trade with China in 2021 reached $125.6 billion, according to figures released in January by China’s General Administration of Customs (GAC).
  • This was the first time that trade crossed the $100 billion mark.
  • India’s imports from China accounted for $97.5 billion, while exports reached $28.1 billion, both records.
  • Compared to 2019 —trade declined substantially in 2020 because of the pandemic, which exaggerates the year-on-year increase —imports are up 30%.
  • Exports to China, meanwhile, are up by as much as 56%.
  • The trade deficit, a long-term source of concern for India, is up by 22% since 2019, having declined last year.

Drivers of growth of India’s imports

  • India’s biggest imports are electrical and mechanical machinery, a range of chemicals that are intermediate imports used by industries, active pharmaceutical ingredients (APIs), auto components, and since 2020, a large amount of medical supplies.
  • According to figures available with India’s Ministry of Commerce, all those key imports continued to rise in 2021.
  • The total value of the top 100 import categories —each of which accounts for more than $100 million in imports —was up by $16 billion in the last year, reaching $45 billion.
  • The top items included both finished goods such as integrated circuits (up 147%), laptops and computers (up 77%) and oxygen concentrators (up four-fold) and intermediate products such as chemicals (of these, acetic acid imports were up eight-fold).

Indications from recent trend of trade figures

  • India’s dependence on China for finished goods has shown no signs of easing, which is a cause for concern.
  • The rise in intermediate imports is, however, less of a concern as it is a sign of industrial recovery and greater demand for inputs.
  • While Indian exports to China have also grown, up by more than 50% in the last two years, these are mostly raw materials such as ores, as well as cotton and seafood, and not finished products.
  • The five-year trend shows the trade deficit continues to widen.
  • The deficit has grown from $51.8 billion in 2017 to $69.4 billion in 2021.

Implications for India-China relations

  • While trade continues to boom, other aspects of economic relations have dramatically changed in the past two years.
  • In the wake of the LAC crisis starting April 2020, the message from New Delhi was that it cannot be business as usual while there are tensions along the border.
  • Investments from China in the past year have plunged amid tighter curbs.
  • In the tech and telecom space, the once rapidly increasing Chinese investments in start-ups has come to an abrupt halt, more than 200 apps remain banned, and Chinese firms have been kept out of 5G trials so far.
  • India has also tightened scrutiny on Chinese firms in India, recently conducting tax investigations into companies including smartphone manufacturer Xiaomi.
  • Those moves last month prompted a statement from China’s Ministry of Commerce calling on India to “provide a fair, transparent and non-discriminatory environment for Chinese businesses”.
  • The trade pattern is unlikely to dramatically change in the near future, even as New Delhi considers a long-term plan to reduce some of these import dependencies by either accelerating long-discussed but slow-moving plans to manufacture some of these critical goods in India or source elsewhere.