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India’s trade deficit with China just fell for the first time in years — but there could be a catch

India’s trade deficit with China just fell for the first time in years — but there could be a catch

Dilsher Dhillon

India managed to reduce its trade deficit with China by $10 billion to $53 billion in 2018-19, according to data from the Ministry of Commerce.
In addition to dramatically increasing exports of cotton textiles, India imported less electronic items as the value of the rupee fell over the course of last year.
However, there might be another reason why the trade deficit fell so convincingly. China might be routing its exports through Hong Kong to understate the extent of its trade surplus.

India managed to reduce its trade deficit with China, or the cumulative difference between imports and exports, by $10 billion to $53 billion in 2018-19, according to data from the Ministry of Commerce.

This was largely due to the fact that India capitalised on China’s trade tensions with the US to boost its exports to the Middle Kingdom - which rose by 31% to $17 billion while reducing its imports.

In addition to dramatically increasing exports of cotton textiles, India imported less electronic items as the value of the rupee fell over the course of last year.

India’s Commerce Minister, Suresh Prabhu, attributed the reduction to continued engagement with China and export promotion.

Whopping reduction trade deficit with China.Unprecedented.Exports increased substantially.Result Of High level engagement,Strategic planning,coordination with stakeholders,market research,sustained efforts,constant monitoring,hand holding with exporters #leadership @narendramodi

— Chowkidar Suresh Prabhu (@sureshpprabhu) April 12, 2019 ]]>

This marks quite a turnaround. India’s trade deficit with its third-largest trading partner has been gradually increasing since 2013-14.

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In 2017-18, India’s trade deficit with China ballooned to a record $63 billion - a gap that was considered “untenable”. In response, India signed a number of export deals and lobbied China to reduce trade barriers.

However, there might be another reason why the trade deficit fell so convincingly. As global pressure increases on China to correct its trade imbalance with trading partners like India, China might be routing its exports through Hong Kong to understate the extent of its trade surplus, according to Mint.

In fact, it seems that India’s imports from Hong Kong increased considerably over the course of 2018 - from $11.1 billion to $16 billion - and these products are reported to be the same ones that India used to import from China such as mobile phone components.

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India’s trade deficit with China just fell for the first time in years — but there could be a catch

Dilsher Dhillon

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