1. Trade deficit: China still elephant, but India must deal with Indonesia too

Trade deficit: China still elephant, but India must deal with Indonesia too

India will discuss its huge merchandise trade deficit with China at the BRICS summit later this week, but it has also to address elevated trade deficit from an unexpected quarter.

By: | Updated: October 12, 2016 3:08 PM
The share of Indonesia in India’s merchandise exports has dropped almost steadily from 2.28% in 2010-11 to a meagre 1.19% in 2015-16. (Reuters) The share of Indonesia in India’s merchandise exports has dropped almost steadily from 2.28% in 2010-11 to a meagre 1.19% in 2015-16. (Reuters)

India will discuss its huge merchandise trade deficit with China at the BRICS summit later this week, but it has also to address elevated trade deficit from an unexpected quarter. While China remains the elephant in the room, analysts say Indonesia has fast emerged as one of the most important countries with which India has a trade deficit, especially after the country’s free trade agreement (FTA) with Indonesia came into effect from October 1, 2010, under the broader Asean FTA framework (see chart), reports Banikinkar Pattanayak in New Delhi.

Blame the situation on India’s inability to tap the FTA to drive up its exports to the Southeast Asian nation, rather than its increased imports from that country.

graph

The share of Indonesia in India’s merchandise exports has dropped almost steadily from 2.28% in 2010-11 to a meagre 1.19% in 2015-16. On the contrary, its share in India’s imports has risen each year from 2.68% in 2010-11 to 3.44% in the last fiscal. Even when India’s overall trade deficit dropped 14% in 2015-16 from a year before, aided by a global commodity price slump, its trade imbalance with Indonesia fell just 6%. This, the analysts argue, reinforces fears that India gained little from its FTA with Asean, more so with Indonesia.

Petroleum products, coal and vegetable oils (both edible and non-edible) made up for roughly 67% of India’s imports from Indonesia in 2015-16, while its exports to that country comprised organic chemicals and capital goods, among others.

According to Ram Upendra Das, professor at the Research and Information System for Developing Countries, the situation looks worse than it probably is. This is because the FTA is helping India import essential items (like edible oil, coal) from Indonesia easily and is contributing to lower inflation locally. Also, India’s exports to that country have been affected by the fact that Indonesia is facing an economic slowdown, while the former still remains the fastest-growing economy in the world. However, Das added that Indian exporters, especially in the private sector, must tap the FTA with Indonesia more aggressively to ship out more.

Also, analysts said India and Indonesia must weigh the possibilities of more government-to-government export deals, especially in commodities where Indonesia is facing a shortfall. Earlier this year, India and Indonesia were at an advanced stage of negotiations to conclude a deal on rice trade. However, the negotiations for exporting 1 million tonnes of non-Basmati rice to Indonesia from official reserves now seem to be stuck, with Jakarta yet to respond to New Delhi’s call for sealing the deal at the earliest.

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