GS Paper III

News Excerpt:

According to the economic think tank Global Trade Research Initiative (GTRI) report, the growing trade deficit with China is a cause for concern. 

• This dependency has profound strategic implications, affecting economic and national security dimensions.

Key highlights of the report:

• From 2019 to 2024, India's exports to China have stagnated at around $16 billion annually.
• Meanwhile, imports from China have surged from $70.3 billion in 2018-19 to over $101 billion in 2023-24, resulting in a cumulative trade deficit exceeding $387 billion over five years.
• Over the last 15 years, China's share in India's industrial product imports has increased significantly, from 21% to 30%.
• This growth in imports from China has been much faster than India's overall import growth.
• China's exports to India grew 2.3 times faster than India's total imports from all other countries.
• In 2023-24, India's total merchandise imports amounted to $677.2 billion, with $101.8 billion of that coming from China.
• This means China accounted for 15% of India's total imports.
• Out of these imports from China, $100 billion or 98.5% were in major industrial product categories.
• When compared to India's global imports of these industrial products, which total $337 billion, China's contribution is quite significant, representing 30% of India's imports in this sector.
• The key sectors where India's dependence is rising significantly include electronics, telecom and electrical; machinery; chemicals and pharmaceuticals; products of iron, steel and base metal; plastics; textiles and clothing; automobiles; medical, leather, paper, glass, ships, aircraft and remaining categories.
• From April to January 2023-24: 
• The electronic, telecom, and electrical products sectors had the highest import value, at $67.8 billion, with China contributing $26.1 billion.
• This represents a substantial 38.4 per cent of the total imports in this category, indicating a heavy dependence on Chinese electronic goods and components.
• In the machinery sector, China accounts for $19 billion, which is 39.6% of India's imports in the sector.
• This underscores China's key role as a supplier of machinery to India.
• During the period, India's chemical and pharmaceutical imports stood at $54.1 billion, of which $15.8 billion came from China.
• This resulted in a Chinese share of 29.2%, highlighting the importance of Chinese chemical and pharmaceutical products in India.
• Similarly, the total imports of plastics and related articles stand at $18.5 billion, with China providing articles worth $4.8 billion.
• This accounts for 25.8% of the total imports in this sector.
• Half of China's imports consist of capital goods and machinery, indicating a critical need for focused research and development in this area.
• Intermediate goods like organic chemicals, APIs (Active Pharmaceutical Ingredients), and plastics, representing 37% of imports, show a pressing need to upgrade these industries.
• Consumer goods make up 12% of the imports, while raw materials make up less than 1%.
• As per the report, Indian firms have carried out imports so far, but with the entry of Chinese firms into the Indian market, India's industrial product imports are set to rise at an accelerated pace.
• As Chinese firms operating in India will prefer to source most of their requirements from their parent firms, Indian imports will rise sharply. 
• For example, in the next few years, every third electric vehicle (EV) and many passenger and commercial vehicles on Indian roads could be those made by Chinese firms in India alone or through joint ventures with Indian firms.
• The large-scale entry of Chinese automakers into India will impact the domestic auto/EV manufacturers, firms working in the EV value chain space and battery development.

GoI initiatives to support indigenous manufacturing:

• Production-linked Incentives (PLI) schemes can make India a more attractive location for companies looking to diversify their supply chains away from China. 
• The Indian government is striving to simplify the compliances in businesses and improve the overall business environment in the country. 
• Ministries and States have decriminalised more than 3,500 provisions, and the Jan Vishwas Bill to amend 42 Central Acts has been introduced to enhance trust-based governance.

Way forward:

• The Indian government and industries must evaluate and potentially recalibrate their import strategies, fostering more diversified and resilient supply chains.
• This is imperative to mitigate economic risks, bolster domestic industries, and reduce dependency on single-country imports, especially from a geopolitical competitor like China.
• India should focus on manufacturing to compete with China on the economic front.
• The government should pursue Free or Preferential Trade Agreements with countries that seek to invest in India.
• In 2023, the committee headed by Abhishek Manu Singhvi recommended rationalising direct and indirect taxes in sync with international norms and laws to increase the competitiveness of domestic industries in global markets.
• The report added that many products imported from China, such as textiles, apparel, glassware, furniture, paper, shoes and toys, are from categories dominated by micro, small, and medium enterprises (MSMEs), and most of these items could potentially be produced domestically.