What India should do to counter China's growing trade dominance

Despite the strong anti-China sentiment and the government's aggressive self-reliant policy post the Galwan Valley clash between Indian soldiers and the Chinese in May 2020, India's dependence on China remains unaltered. Both the countries had a bilateral trade of $86.4 billion in fiscal 2021, making mainland China the country's largest trading partner, overtaking the US. The trade between both Asian giants even registered 5.53 per cent growth in the fiscal year 2021.

Interestingly, China was the only major country to post a growth in trade with India. Indo-US bilateral trade contracted 9.5 per cent to $80.5 billion. India's overall trade with the world also declined more than 13 per cent to $684.77 billion.

CARE Ratings chief economist Madan Sabnavis tells Business Today that the government needs to do more at the policy level. "Temporary measures taken post-Galwan have helped to an extent. Though these steps have brought awareness to the impending problems amongst the policymakers and the public, much more needs to be done at the policy level," he said.

Sabnavis said the government must engage with Europe and the United States to boost trade ties and counter China's growing influence. "We urgently need to enter into bilateral trade agreements with Europe and the United States, any further delay will push us behind countries like Bangladesh and some other Southeast Asian countries like Indonesia," he added.

He said the problem with bilateral trade with China is not only the trade deficit but also its composition that hurts India's interest. "What we export is raw materials, iron and steel etc., and our imports are mainly consumables like telephone, TV, electricals, etc. To manage the trade deficit, we need to increase our component agriculture produce exports."

As per Sabnavis, the production linked incentive [PLI] will surely help improve the country's dependence on Chinese imports. India having a big domestic market and capability of competing with China in attracting global manufacturing facilities is quite significant, he said.

China is by far India's biggest source of imports at over $65 billion. At the same time, India's imports from the US went down 19.4 per cent to $28.88 billion, while its overall imports decreased by more than 17 per cent to $393.6 billion. Machines and electronics make up more than half of the import basket in value terms.

After the Galwan clash in May 2020, restrictions on China, be it on imports or investments,  were increased in terms of changes in FDI rules to curb Chinese investments in India. The government also banned 59 Chinese apps including the very popular Tiktok on grounds of date security of Indian users. In September and November, another 118 and 43 apps were added to the list, respectively.  

The Centre amended the import policy for colour televisions from free to restricted categories. Imported tyres, incense sticks, and air conditioners were also put under the same category. Yet, the import of electronics and machines grew by nearly 6 per cent from China in fiscal 2021. It accounts for over 40 per cent of all the electronics and machines that India imports.

Experts believe to fully realise the Atmanirbhar Bharat dream, the domestic industry needs to overcome some of the fundamental roadblocks like the high cost of capital and land, poor infrastructure, snail-paced bureaucracy and lack of adequate government support. All these hurdles, they say, make India Inc uncompetitive in the global arena. They add that the PLI is one such measure that can have a potential impact on India-China trade ties.

Also read: China pips US to emerge as India's biggest trade partner in 2020 despite border conflicts

Also read: What an irony! Mainland China beats US to be India's biggest trade partner in H1FY21