India to talk tough on trade deficit

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New Delhi | Published: March 24, 2018 6:42:02 AM

Amid a trade war with the US, China will have to brace for some tough talks on its massive — and rising — trade surplus with India when its commerce minister Zhong Shan visits New Delhi on Monday.

trade deficit, india, New Delhi, US, Narendra Modi, Chinese market, Xi Jinping, china export, NTB, FDI data In his meeting with Zhong under the aegis of India-China joint economic forum, commerce and industry minister Suresh Prabhu will impress upon China to take concrete measures to set right the massive trade imbalance, an official said. (PTI)

Amid a trade war with the US, China will have to brace for some tough talks on its massive — and rising — trade surplus with India when its commerce minister Zhong Shan visits New Delhi on Monday. At the same time, both the nations are expected to find some common ground in their united opposition to unilateral trade protectionism by the US. In his meeting with Zhong under the aegis of India-China joint economic forum, commerce and industry minister Suresh Prabhu will impress upon China to take concrete measures to set right the massive trade imbalance, an official said. India will express its deep concern over non-tariff barriers (NTBs) and inadequate access to the Chinese market in sectors ranging from agriculture and marine products to pharma and IT, despite several rounds of talks in recent years to achieve trade balance, said the official.

Even the promise of Chinese Prime Minister Xi Jinping in his meeting with Prime Minister Narendra Modi in September 2014 to raise investments in India to $20 billion in five years, purportedly in lieu of the neighbour’s ever-rising exports to this country, is yet to materialise. Inflows of foreign direct investment (FDI) in equity from China hit $1.78 billion between April 2000 and December 2017, representing a meagre 0.5% of total inflows into India during this period. Even economies like the Netherlands, Spain and Luxembourg that are far smaller have invested more in India than China, according to FDI data compiled by the department of industrial policy and promotion.

Official data show China’s exports to India were 1.8 times India’s outbound shipments to that country in 2000-01. But at $63.2 billion, what China exported to India in the first 10 months of the current fiscal was more than six times of what India shipped out to China. Trade analysts have said China has been very effectively using non-tariff barriers to curb imports that it wants to avoid. So while India’s average tariff rate of 13.5% (it’s the highest among Regional Comprehensive Economic Partnership nations of which China is a part) is criticised by some global analysts as a deterrent to greater trade flows, China’s restrictions on imports by stealth, through the application of NTBs, often remain invisible.

Analysts have attributed the issue of inadequate market access and NTBs to China’s frosty political ties with India and acute self-centred trade policies. However, they have also stressed that more than our imports, which are crucial to meet the appetite of a fast-growing economy, it’s the inadequate market access offered by China and the inability of Indian industry to produce enough value-added products at competitive rates that have to be highlighted.

Ajay Sahai, director general at the Federation of Indian Export Organisations, said while efforts must be made to keep trade balance at a healthy level by securing greater market access, industry must also supplement the government’s efforts by being competitive and widening its profile of production of value-added items to cater for the Chinese market. Also, much of India’s supplies to China used to be those of raw materials like iron ore and cotton. While restrictions on mining in key states reduced iron ore supplies for Indian exporters, China’s decision to shift from labour-intensive industries like textiles and garments to beat soaring wage costs at home have reduced its reliance on Indian cotton.

While half of India’s top 10 segments of items for exports to China in recent years are low-value primary goods, almost all the top 10 product categories that China ships to India are manufactured goods, mainly electronics items, although the neighbour ships out a lot of inputs as well. But an earlier study by policy research institute RIS punctured the conventional wisdom that China was flooding the Indian market because its products were cheaper. It said India imported “uncompetitive products that can easily be supplied by other competitors of China at cheaper prices to India” to the tune of $9.7 billion, or 19.5% of its total imports from the neighbour, in 2012.

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