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India-China trade balance agreement remain a non-starter after 3 years

The agreement between both the nations planned to achieve trade balance by 2019

Subhayan Chakraborty  |  New Delhi 

India-China deal on trade balance remain a non-starter even after 3 years

While the trade deficit with China continues to balloon, which is currently over $51.09 billion, next month would mark the third anniversary of India signing an agreement achieving bilateral with the nation by 2019.

The Five-year Program for economic and trade cooperation is a joint medium term roadmap for promoting trade and investments, signed between the nations back in September 2014.

"While it is broad based, it acknowledges the pitfalls of one-way trade," a senior government official said under conditions of anonymity.

Apart from this, the agreement also asks for easing of restrictions by the Chinese government against high potential export items such as bovine meat, fruits & vegetables and basmati rice, among others. Of these, only has seen a breakthrough with 14 firms allowed rice to be exported to China last year.

However, since the agreement is 'non-binding', the scope of deliberations with regard to reducing trade deficit depends significantly on the presence of a free environment for discussion, he added.

Growing allegations of military incursions from both sides have restricted that space further. The armies of both the nations are currently in the midst of a standoff at the disputed of In this regard, the Commerce Department officials said the chances of further conclusive talks on trade issues remain slim in the near future.

However, the government is throwing its weight behind a long term plan of revising the export basket to China. Raw materials like cotton, and copper, which have been a hallmark of to China for long, has come under increasing scrutiny as the government and exporters try to shift export priorities towards value-added products in a bid to cap growing trade deficit.

Union Minister for Commerce and Industry had earlier said that export focus should shift out from raw materials. The Ministry has identified key sectors such as hardware, electronics, pharmaceuticals, textiles, auto components, to realign and boost

A revised export basket to China has the potential to significantly boost export earnings and bridge the trade deficit which was a whopping $61 billion in the financial year (FY) 2015-16.

With a burgeoning middle class and rising labour costs, China is expected to relinquish its dominance over the labour intensive and low-end manufacturing space in the near future. Industries in India are closely following this development in China.

"We are looking to harness our strengths in labour-intensive sectors where India enjoys [a] significant advantage over other developing nations," a Commerce Ministry official said under conditions of anonymity.

Currently, the top five export categories to China are all input products. These are used by China to manufacture costlier goods, which it ships abroad — often back to India.

In the last FY, India's highest export earners were iron ore, and worth $1.43 billion, $1.34 billion and $886.96 million, respectively.

These, along with other raw materials like copper, constituted for more than 70 per cent of India's to China, Ajay Sahai, Federation of Organisations said.

"However, the trend is slowly changing. While now is increasingly being imported from China and manufactured yarn exported back, the reverse was true 5-6 years back," he added.

Greater trade in the areas of hardware, electronics and renewable energy has the potential to expand greatly, according to Sachin Chaturvedi, Director General of Research and Information System for Developing Countries (RIS), a think tank under the Ministry of External Affairs.

On the other hand, India products much higher up the value chain from China with topping the list at $21.98 billion, at $5.61 billion and plastic articles at $1.8 billion.

It would also insulate from being at the mercy of high volatility in global commodity markets as had been evident last year when copper and iron shipments to China fell owing to historically low demand and a glut in supply.

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