India?s expanding trade deficit with China is viewed as a serious concern by many. Of late, the concern is not limited to China alone. India?s trade deficit with Australia is also being cited as an example of similar concerns.
From a bilateral trade perspective, India-Australia trade is much less discussed than the India-China trade. As two of the Asia-Pacific region?s largest economies, India and Australia are expected to have robust exchanges. Statistics provided by the Directorate General of Commercial Intelligence and Statistics (DGCIS) in India vindicate the expectation. The latest country-wise trade data giving information till the first three quarters of the financial year 2009-10 (i.e., April-December 2009-10) shows Australia as India?s eighth largest goods trade partner. With bilateral trade amounting to $9.7 billion for the period, Australia accounted for just about 3% of India?s total goods trade. The volume and share are almost as much as India trades with Iran ($9.9 billion; 3.03%) and Switzerland ($9.8 billion; 3.02%), which are the country?s sixth and seventh largest trade partners respectively, for the period. India?s trade with Australia, however, is much less than its trade with its top three partners?China ($29.9 billion), UAE ($28.4 billion) and the US ($25.1 billion), respectively. During 2008-09, however, Australia did not figure among India?s top ten goods trade partners. It was the eleventh largest partner, with bilateral trade amounting to $12.5 billion. Australia?s share in India?s total trade was 2.6% during the year.
The balance in bilateral goods trade is in Australia?s favour.
Almost 90% of total bilateral trade comprises India?s imports from Australia. Switzerland is the only other country among India?s top ten trade partners with which India?s trade shows a greater proportion of imports (95.7%) than Australia?s. In this respect, imports dominate India?s trade with Australia and Switzerland much more than it does with China. Quantitative imbalances expressed as proportion of imports in total trade are relatively more with Australia and Switzerland since such proportion for China is around 75%.
The imbalance in India-Australia trade, however, is hardly surprising. It reflects India?s dependence on Australia as a vital source of energy and mineral resources. Coal imports account for more than 45% of India?s total imports from Australia. Semi-manufactured non-monetary gold is another vital import. Taken together, coal and gold comprise more than 85% of India?s annual imports from Australia. From a narrower commodity perspective, 98% of India?s imported bituminous coal is sourced from Australia. Indeed, coal marked the beginning of commercial exchanges between the two countries, with the first Australian ship carrying coal hitting Indian shores more than two centuries ago. Similarly, gold trading between Australia and India also has a long history.
India?s trade deficits with China and Australia are unlikely to reduce in the foreseeable future. Imported components from China will continue to remain an efficient source of intermediates for Indian manufacturing. As Indian manufacturing picks up its growth momentum in the coming months, imports of machinery and equipment from China are expected to see a corresponding increase. Similarly, import of coal from Australia is going to increase as Indian industry begins charting a robust growth course. Increased industrial activity will increase demand for electricity. With most of India?s electricity plants being coal-fired thermal units, coal will be in heavy demand. Initial estimates indicate that coal imports might increase to 50 million tonnes (mt) in the financial year 2010-11 from 28 mt in 2009-10.
It is ironical that in spite of having the world?s fourth largest coal reserves, India?s power plants have to rely heavily on imported coal. Supply of domestic coal is getting increasingly affected by Maoist activities in India?s coal-rich states of Orissa, Chattisgarh, Jharkhand and Madhya Pradesh. Most private power producers are finding imported coal an easier option instead of domestic sourcing from captive blocks. The public sector giant Coal India Limited (CIL)?s domestic procurement has also run into difficulties, thereby affecting the outputs of state-owned power corporations. On the other hand, import of gold is also unlikely to decline, given India?s insatiable domestic demand for gold.
Going by the Sterlite Industries acquisition of a gold mine in Queensland and copper mines in Tasmania, Australia might actually turn out to be a happy hunting ground for India?s gold and mineral prospectors.
It is important to understand that trade is a two-way traffic. In a globalised world, producers will resort to imports on price and quality grounds as long as such options are available. India?s industrial producers are not an exception. Its trade imbalances with Australia and China are outcomes of such rational responses. Such imbalances will accentuate till India can offer its industrial producers home-grown alternatives of same quality at competitive prices.
The author is a visiting senior research fellow at the Institute of South Asian Studies (ISAS) in the National University of Singapore (NUS). Views are personal
