Tackling India’s trade deficit with China

23 Apr 2015

Overview: India’s trade deficit with China amounted to US$37.8 billion in 2014, a year on year increase of 7.9% and is likely to double to $60 billion in the next two years. Since China has emerged as India’s largest trading partner and increased India’s dependence on its products, addressing the trade deficit is crucial to ensuring that the Sino-Indian relationship continues to prosper. A significant degree of planning and strategies that include such measures as advancing India’s domestic economy to make it competitive with Chinese imports, enabling policies to enhance Indian exports to China and addressing the constraints and non-tariff barriers that China places on Indian imports, are required. Although there have been some efforts and discussions by Indian authorities on the issue, these have not provided positive results and India, consequently, has not been able to find a long-term solution to the problem. In this context, Prime Minister Narendra Modi’s agenda-based visit to China in May provides a major opportunity to recalibrate the imbalance.

Key points

  • India’s rising trade deficit with China is now close to US$40 billion and is likely to double to $60 billion in the next two years, leading to serious concerns over India’s ability to sustain it.
  • The deficit is the result of China’s structural shift from a primary products base to a manufacturing regime.
  • For the long-term benefit of the bilateral relationship, the trade imbalance must be addressed. This would include assessing India’s export opportunities and potential, addressing the non-tariff barriers that China imposes on Indian exports, encouraging foreign direct investment and addressing India’s structural challenges.
  • Prime Minister Narendra Modi’s forthcoming visit to China this May will provide a useful opportunity to discuss this issue with President Xi Jinping.
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