Waking up to trade imbalance

It is good that India has finally woken up to the perils of its growing massive trade deficit with a diplomatically belligerent China and sent a strong message that the current trade imbalance can't continue for long. On the diplomatic front, China continues to put India under pressure — refusing to support its bid for membership in the Nuclear Suppliers Group (NSG) and its campaign against Pakistan-based terrorists and their outfits that launched dreadful attacks in Mumbai, Pathankot, etc. China also contests India's territorial rights over Arunachal Pradesh and Jammu & Kashmir and interferes with India's relationship with Taiwan and Tibetan leader Dalai Lama. China even mocked at ISRO's feat creating a world record by launching 104 satellites at one go saying it is hardly admirable for impoverished India. However, thanks to India's stance to delink diplomacy with trade, China is running a massive trade surplus with India to the latter's utmost discomfort. India now seems to be ready to take up the trade issue with China as, for the second year in a row, India's trade deficit with China is set to top the $50-billion mark in 2016-17, the highest with any single country.

In fact, China accounted for almost 50 per cent of India's total international trade deficit in 2015-16. The trend continues in the current financial year. During last April-September, the country's trade deficit with China was at $25.22 billion. China's exports to India are mostly manufactured goods of all sorts — from MSME products to consumer electronics and power equipment. Such massive imports from China threaten to ruin India's industry and job prospects. Exporting to China has been a difficult proposition before India. No country — not even the USA — seems to have become so import dependent on a single country like India on China. Given this background, the latest assertion by India's Economic Affairs Secretary Shaktikanta Das that India wants greater access to the Chinese market and there has to be an "evenness and balancing" of the country's massive trade deficit with China for the two nations to move together on the path of progress is very significant.

"For sustainable trade relationship, balance of trade is required between India and China," the Finance Ministry said in a series of tweets attributed to Das after his recent meeting with a team of Chinese journalists. "We have a trade deficit with China. We would like to increase our exports to China," Das rightly put. India's trade deficit with China rose to $52.69 billion in 2015-16 from $48.48 billion in the previous fiscal. India's total trade deficit in 2015-16 was $118.5 billion. The total trade between India and China alone was worth over $80 billion on an f.o.b basis. The b.o.p deficit with China will be much larger if one takes into account of the facts that the cost of freight and insurance (c.i.f), as well as interest on export credit, are all pocketed by China, which is not generally known to use Indian shipping lines, insurance companies and financiers to ship its products to India.

The Economic Affairs Secretary pushed for greater access to at least pharmaceuticals, IT & software services, and agriculture. Indian pharmaceutical companies, the world's top ranking generic drugs exporter, can meet standards prescribed by China. India is a major pharmaceuticals exporter to the US. "We are very strong in IT software and Pharma. We would like to export these to China along with fruits, fish, and vegetables," Das had said. He also pitched for higher FDI inflows from China.

The total foreign direct investment (FDI) from China still stood at a paltry $1.59 billion between April 2000 and September 2016, accounting for just 0.5 per cent of the overall inflows of such investments into India. China is investing several times more in Pakistan, Nepal, Bangladesh, Myanmar, and Sri Lanka. The question is: will China pay heed to India's legitimate demand for a more balanced trade by encouraging imports of farm and manufactured products which India exports all over the world? If it doesn't, will India raise non-tariff barriers to cut imports from China drastically?

A fresh Chinese export onslaught has already put India's handset vendors on the mat. According to technology research firm IDC, Indian handset vendors such as Lava, Karbonn, Intex, and Micromax, dominating the feature phone segment, now face significant challenges from Chinese players. In the smartphone market, China-based vendors' share touched a whopping 46 per cent in the last quarter, with their shipments doubled compared to the corresponding period last year. The share of Indian vendors dropped to 19 per cent. "This is the first time when none of the homegrown vendors were able to make their position in the top five," said Jaipal Singh, market analyst for client devices at IDC India. Trouble for local players is said to be going to aggravate further during the current year.

India must know how to handle the twin trade attacks from China — pushing exports and blocking imports. Maybe a Donald Trump-type prescription on international commerce would be more relevant to India to protect its market and local jobs against the systematic Chinese invasion of the market, which also threatens the government's 'Make in India' initiative. China must import more from India to balance the trade between the two countries. If the WTO rules did not help the US export enough automobiles to Japan in the face of strong artificial trade barriers from its top diplomatic friend in the Pacific region, there is no reason to believe that they will come in the way of India's taking non-tariff actions to rein in massive trade imbalance with China. India must act fast to contain the alarming Chinese trade invasion of the Indian market.