China is offering India a softball solution to the two countries’ staggering trade imbalance

When China’s minister for commerce Zhong Shan visited India for the China-India Joint Group on Economic Relations, Trade, Science and Technology this March, a conciliatory tone was in the air. Deals were struck, investment pledges were made and China even hinted at the complementary nature between its Belt and Road Initiative and the Make in India programme.

India’s commerce ministry issued a statement the day after the meet. It announced that the two countries would work to address India’s growing trade deficit with China. While Indo-China trade reached a record $84.4 billion last year, India’s exports to China comprised a mere 19% of this figure, with the rest coming from imports. This amounts to a $52 billion trade deficit.

For its part, China has promised it would allow Indian exporters greater access to its markets, especially for agricultural and pharmaceutical products.

The first of such schemes to seemingly achieve this was unveiled earlier this week. China is planning to hold an import-only trade fair this November, but a mere total of around 100 Indian exporters are expected to participate.

An insufficient solution

This solution is, by all accounts, a PR stunt and needs to be backed up by more comprehensive measures. Given the low level of representation and the fact that India’s exporters will be vying with companies from a number of other countries, out of the 100 participating nations, so it’s unlikely to translate into a substantial boost to India’s exports.

In its defence, China has proposed a free trade agreement with India - something that both sides should work toward as well as the reduction of tariffs. India’s pharmaceutical exports to China were consistently curbed by the latter’s high duties on medicines. While China recently agreed to cut tariffs on 28 drugs, especially cancer drugs, a specific policy to promote generic drug imports would be more beneficial to India.

India is not the only country that China is trying to reduce its trade imbalance with. China has a $375 billion trade deficit with the US. Under the threat of punitive tariffs on its products, China has reportedly pledged to reduce this deficit by “significantly increasing” its imports of US goods and services. The US plans to send a delegation to China soon to hammer out the details of this trade deficit reduction plan.

India has shown it can act tough too

In August last year, India matched its counterpart’s protectionist measures by imposing anti-dumping duties on 93 Chinese products, including electronics, chemicals and machinery.

Unfortunately, India is not as influential as the US and hence, its bargaining power is limited. It should, however, continue applying pressure to China to stand by its promises.

India also needs to make its manufacturing industry less dependent on Chinese raw materials and get better at producing value-added products. India mostly exports raw materials like iron ore and cotton to China, which China can easily get from other countries, and imports finished goods like electronic items and solar panels. These are less easy to substitute because of their cheap prices. India’s dependence is hence, a huge vulnerability.