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

In 2016-17, India's highest export earners were iron ore, cotton and organic chemicals

Subhayan Chakraborty  |  New Delhi 

Narendra Modi, Xi Jinping
Photo: Twitter: @narendramodi

While the trade deficit with China continues to balloon to over $51.09 billion, next month will mark the third anniversary of India signing an agreement for achieving bilateral trade balance by 2019.

The five-year programme for economic and trade cooperation is a joint medium-term road map for promoting trade and investments, signed between the nations in September 2014.

“While it is broad-based, it acknowledges the pitfalls of one-way trade,” an official said.

The agreement also seeks easing of restrictions by the Chinese government against items such as bovine meat, fruit and vegetables, and basmati rice. Of these, only basmati rice has seen a breakthrough with 14 firms allowed to to China last year.

However, since the agreement was non-binding, the scope of deliberations with regard to reducing the trade deficit depended significantly on the presence of a free environment for discussion, the official added.

The Indian and Chinese armies are in a stand-off in the Doklam plateau of Bhutan. Commerce department officials said chances of conclusive talks on trade issues were slim in the near future.

However, the government is throwing its weight behind a long-term plan of revising the basket to China. Raw materials like cotton, iron ore and copper, which have been a hallmark of Indian exports to China, have come under increasing scrutiny as the government and exporters try to shift priorities towards value-added products.

Commerce Minister Nirmala Sitharaman had earlier said the focus should shift away from raw materials. The ministry has identified hardware, electronics, pharmaceuticals, textiles and automobile components.

A revised basket to China has the potential of boosting earnings and bridging the trade deficit,  which swelled to $61 billion in 2015-16.

China is expected to relinquish its dominance over the labour-intensive and low-end manufacturing in the near future. Industries in India are closely following this development. “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.

The top five categories to China are all inputs used by Chinese companies to manufacture goods for re-export, including to India. In 2016-17, India’s highest earners were iron ore, and chemicals, 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 exports to China, said Ajay Sahai, director general, Federation of Indian Exports Organisations “However, the trend is slowly changing. is increasingly being imported from China and manufactured yarn exported back,” he added.

Trade in hardware, electronics and renewable energy has the potential to expand greatly, according to Sachin Chaturvedi, director-general of the Research and Information System for Developing Countries (RIS), a think tank under the external affairs ministry. India imports products much higher on the value chain from China with electrical machinery topping the list at $21.98 billion, at $5.61 billion and plastic articles at $1.8 billion.

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

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