India cuts China imports post Galwan; to slash trade deficit by $15 bn

With tensions at boiling point along the Line of Actual Control (LAC) in Ladakh despite a freezing winter, Indian has managed to hit China in its pocket by significantly cutting down on imports from across the Great Wall while not letting exports slip.

A combination of seething public anger after the Galwan killings, apprehensions over goods being sourced from the land of that was the origin of the coronavirus, and the Modi government’s relentless ‘Atmanirbar Bharat’ push during the pandemic have led to significant shrinkage in India’s trade deficit with China.

The deficit is slated to come down by $15 billion in 2020-21, according to preliminary estimates of the Ministry of Commerce & Industry. In the previous years, too, India managed to cut down its trade deficit with China by $5 billion in 2019-20 and $10 billion in 2018-19. According to information collated from India Inc, imports from China will decline significantly during the current financial year while exports will remain stable or increase marginally.

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The trade deficit with China was reduced from $63,047 million in 2017-18 to $53,567 million in 2018-19, and further to $48,647 million in 2019-20. This level of deficit will be reduced to around $33,000 million by the end of the current financial year, according to senior officials of the commerce & industry ministry.

This development is economically and politically significant in view of the ongoing tensions between the two sparring neighbours with the US-China trade war only getting worse.

According to data provided by the Ministry of Commerce, imports from China during the current financial year are significantly lower than the previous year and trade deficit with the eastern neighbour is coming down considerably. During the first eight months of the current fiscal, India’s trade deficit with China was around $25,178 million or about $25 billion.

After the killing of 20 Indian army personnel by the Chinese at Galwan, traders had called for a boycott of Chinese goods while the customs department started scrutinising import shipments from China with an eagle’s eye. The Confederation of All India Traders (CAIT), for example, urged traders to avoid Chinese goods and hit out openly at Beijing. While items like hardware and components for electronics are being imported from China for want of other large sources of supply, items with little value addition like low-end toys, footwear and bulk products like decoration items are being increasingly manufactured in India.

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At the same time, efforts have been made to ship more goods to China and the Union government has been telling Chinese officials in clear terms that trade deficit should be reduced. “The government of India has made sustained efforts to achieve a more balanced trade with China, including bilateral engagements to address the non-tariff barriers on Indian exports to China. Through these efforts, various protocols have been signed to facilitate export of Indian rice, tobacco, fishmeal/fish oil and chilli meal from India to China,” Hardeep Singh Puri, Minister of State for Commerce & Industry, said in reply to a question in Lok Sabha earlier. “The government has also taken various measures to extend support to exporters by facilitating buyer-seller meets between potential importers of China and Indian exporters to increase exports. In addition, Indian exporters are encouraged to participate in major trade fairs to showcase Indian products,” he said.

At the same time, import substitution has been encouraged through various measures, like the ‘Atmanirbhar Bharat’ policy, to promote self-reliance with a vision to make India a net exporter of manufactured goods. “The government has also implemented policies to promote domestic manufacturing through ease of doing business and creating an enabling physical environment for manufacturing, through provision of developed land and infrastructure,” Puri informed the Lok Sabha.

Also read: How Army’s Bihar regiment removed Chinese post in Galwan Valley

The efforts made during the pandemic will show results in the long run only if India manages to position itself prominently in the global supply chain for key items like chemicals, textiles, footwear, electronics, computer hardware, petrochemicals and processed foods.

India’s exports to China increased from $13,333 million in 2017-18 to $16,752 in 2018-19 and then declined marginally to $16,612 million in 2019-20. During the first eight months of the current financial year, exports to China stood at $13,639 million despite the logistics difficulties faced during the COVID-19 pandemic. It is expected that exports at the end of the current fiscal will be higher than exports during the previous year.

Officials feel Indian can increase shipments to China by diversifying the export basket with high value-added items like sophisticated machinery, automobiles and jewellery, quickly giving up dependence on items like iron ore and raw cotton.