India’s reliance on Chinese goods surged in 2021

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• Imports to India from China reached nearly $100 billion for the first time in the year 2021, as the import of electrical and electronic goods, particularly smartphones, as well as machinery, fertilizers and specialty chemicals, including active pharmaceutical ingredients (APIs), witnessed a massive surge.

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• India’s exports to China in 2021 also reached record levels: Indian exports to China jumped to $24 billion in 2021, compared to $19 billion in 2020 and $17.1 billion in 2019.
• Trade deficit: India’s trade deficit with China in 2021 stood at $61 billion compared to $39 billion in 2020.
  • India was China’s 15th largest trade partner in 2021.
• Total two-way bilateral trade: touched $125.66 billion.
• Previous year: India’s total imports from China crossed a record $97.5 billion last year.
• The top 100 items: by value accounted for $41 billion, up from $25 billion in 2020.
• Category: integrated circuits were up by 147%, laptops and personal computers by 77%, and oxygen therapy apparatus by more than fourfold.
  • Acetic acid was up by more than eightfold.
• China is India’s top trading partner: followed by the US, UAE, Saudi Arabia and Singapore.
• The US: maintained its place as China’s third-largest trade partner following ASEAN and the European Union.

Reasons for the rising imports

• Recovery in domestic demand: For finished products from China and an industrial recovery are the key drivers for increase in imports.
• Growth in India’s exports worldwide: has also pushed up the need for many crucial intermediate inputs, and disruptions elsewhere have led to greater sourcing from China in the short-term, for instance in the case of coking coal previously sourced from Australia and Indonesia.
• India is sourcing both finished goods for the Indian market: such as electronics, in record numbers, while also relying on China for a range of intermediate industrial products, many of which cannot be sourced from elsewhere and are not made in India in sufficient quantities.
• Import of petroleum (crude) and petroleum products: pearls, precious and semi-precious stones, and also that of coal, coke, and briquettes also jumped significantly.
  • These items together accounted for about $60 billion of the total imports from China during this period.
• Mirror the US-China relationship: Despite its worsening political relations with China, the US has not been able to decrease its reliance on the ‘factory of the world’.
  • India, too, has been unable to decouple from the Chinese economy, despite the government of India’s efforts.
• India’s China-dependence syndrome: could increase further when our manufacturing industries recover fully to the pre-pandemic levels.
• APIs: India’s dependence on the import of APIs from China would also take a long time.
• The mismatch in the Indian and Chinese data: could be due to certain issues related to leakages in reporting and non-reporting of data, due to under-invoicing done by exporters.

Way Forward

• If the growth in imports of finished items: such as toys, electronics, or furniture, which we could be manufacturing in India, is not a good dependency.
• Emerging as a manufacturing hub: The fact that we are acquiring new intermediate goods, for instance, is probably a good development in the broader picture as it means we are emerging as a manufacturing hub and need new inputs to match the global demand for a finished Indian product.
• Identify: which of these are short-term changes because of disruption during the pandemic, and which are longer-term trends that we need to consider and deal with.
• We got some market access in China’s agricultural market: We are now exporting more non-basmati rice, exotic vegetables, soybeans and fruits.
• Growth in India’s trade with other key trading partners: including the US, UAE and Australia was even higher than the growth in trade with China.
  • India is currently in the process of negotiating Free Trade Agreements (FTAs) with the UAE, EU, UK and Australia.
• The government also modified foreign direct investment (FDI) rules: making the Centre’s approval a must for any FDI in Indian firms from neighboring countries apparently aimed at preventing opportunistic takeovers of domestic firms by Chinese companies during the pandemic.

Source: TH