Big drop in trade deficit with China? Only if Hong Kong is not counted

By: |
Updated: April 18, 2019 6:43:53 AM

Similarly, while its exports to China rose 31% up to January, its despatches to Hong Kong declined nearly 14%. This upset India’s trade equlibrium with Hong Kong —from a surplus of $4 billion in FY18 to a deficit of $4.7 billion (up to January) in FY19.

India’s imports from China dropped 5% from a year before, its purchases from Hong Kong jumped almost 59%.India’s imports from China dropped 5% from a year before, its purchases from Hong Kong jumped almost 59%.

Amid the euphoria over an “unprecedented” reduction in India’s goods trade imbalance with China last fiscal, New Delhi incurred a trade deficit with Hong Kong — widely considered a proxy for Beijing — for the first time in at least 20 years in FY19. This indicates that China is ramping up supplies to India through Hong Kong, as India mounts pressure on Beijing to trim its massive trade deficit with the neighbour.

An FE analysis of trade data over the past two decades suggests India’s effective trade deficit with China (including Hong Kong) in FY19 may not have dropped after all while the official estimate is of a $10-billion decline. Worse, if the trade trend witnessed up to January last fiscal lasted through March, this effective trade deficit with China may have even widened to a record $61.1 billion in FY19, against $59 billion in the previous year.
Up to January last fiscal, India’s combined trade deficit with both China and Hong Kong stood at $51 billion.

Official DGCIS data showed between April and January (up to which the latest country-wise data are available), while India’s imports from China dropped 5% from a year before, its purchases from Hong Kong jumped almost 59%.

READ ALSO | Unemployment doubled in last 8 years; 50 lakh jobs lost since demonetisation

Similarly, while its exports to China rose 31% up to January, its despatches to Hong Kong declined nearly 14%. This upset India’s trade equlibrium with Hong Kong —from a surplus of $4 billion in FY18 to a deficit of $4.7 billion (up to January) in FY19.

Earlier this week, commerce and industry minister Suresh Prabhu said in Mangalore that India’s trade deficit with China dropped $10 billion in the last fiscal, resulting in the savings of Rs 70,000 crore to the exchequer.

Separately, in a recent tweet, Prabhu said: “Whopping reduction (in) trade deficit with China. Unprecedented. Exports increased substantially. Result Of High level engagement, Strategic planning, coordination with stakeholders, market research, sustained efforts, constant monitoring, hand holding with exporters.” Given the surge in imports from Hong Kong last fiscal, the government may have to factor in supplies from this Chinese gateway to correctly gauge New Delhi’s trade balance with the giant neighbour.

India’s huge trade deficit with China — greatly aided by massive non-tariff barriers in the world’s second-largest economy — has long been a sore point with New Delhi, which has raised the issue in almost all bilateral trade discussion with Beijing for years now, but with very limited success. India has also been seeking greater market access from China in various sectors, especially agriculture, pharma and IT, to improve trade balance.

India’s merchandise trade deficit with China touched a record $63 billion in FY18 before easing in the last fiscal. Up to January, the deficit with China alone stood at $46.3 billion, against $52.8 billion a year before. India imports a wide array of goods from its largest supplier China, including electronics, capital goods, chemicals, plastics and steel. From Hong Kong, it mainly buys capital goods, electronics, gems and jewellery.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Switch to Hindi Edition