India’s trade deficit with China
What’s in the news?
- A recent study released by Acuité Ratings & Research said India can potentially reduce its trade deficit with China by $8.4 billion over FY 21-22, which is equivalent to 17.3% of the deficit with China and 0.3% of India’s GDP.
- This can be achieved by the rationalisation of just a quarter of India’s imports from that country in select sectors where India has well-established manufacturing capabilities.
- Without any significant additional investments, the domestic manufacturing sector can substitute 25% of the total imports from specified sectors in the first phase.
Highlights of the study
- With an import of $65.1 billion and export of $16.6 billion, India recorded a trade deficit of $48.5 billion with China in FY20.
- While imports from China have moderately declined by 15% since FY18 due to imposition of anti-dumping duties on some products, the dependence of the domestic economy on Chinese imports remains high with direct contribution to over 30% of India’s aggregate trade deficit.
- Over the past 3 decades, India’s exports to China grew at a Compound annual growth rate of 30% but its imports expanded at 47%, leading to lower capacity utilisation of domestic players in a few sectors. India can consider certain measures to reduce the dependence gradually which will also have a positive impact on the Indian economy.
- Nearly 40 sub-sectors of India had the potential to lower their import dependency on China. The sectors include chemicals, automotive components, bicycles parts, drug formulations, cosmetics, consumer electronics and leather-based goods.
- Dumping is the practice of selling a product in a foreign market at an unfairly low price (a price that is lower than the cost in the home market, or which is lower than the cost of production) in order to gain a competitive advantage over other suppliers.
- An anti-dumping duty is a tariff that a domestic government imposes on foreign imports that it believes are priced below fair market value.
- Countries use anti-dumping duty to curb the ill effects caused by dumping on domestic industries, as well as to promote and establish fair trade.
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