Besides import curb, farm exports to China key to India cutting deficit

India requires more than just import curbs to narrow its current-account deficit. It needs to tap a new crop of measures, literally.

Expanding agricultural exports such as soybeans and cotton to China by exploiting opportunities from a global trade war will help cut the deficit, economists at CRISIL Ltd. said.

Soybeans are at the heart of the trade war between the U.S. and China and cotton isn’t far behind. It puts India in a position to step up and fill the gap left by the U.S., according to economists Dharmakirti Joshi and Pankhuri Tandon.

China is already the top market for India’s overall export growth in recent months. Between April and August, India’s exports to China have grown an average 52.9 per cent year-on-year, compared with 14.7 per cent to the U.S., 11.9 per cent to the UAE and 12.6 per cent to Europe, they wrote in a column in the Mint newspaper.

The rise in exports to China has seen India’s trade deficit with the Asian giant shrink, although the gap widened on an overall basis. That, along with a slowdown in foreign capital inflows, has led to concerns that the current-account deficit will widen, has prompted Finance Minister Arun Jaitley to hint at more measures to curtail the gap.

While a slew of import duties on air-conditioners to footwear have been announced, economists say India needs to take measures to boost exports too. While a sharp drop in the rupee is helping at the margins, more policy incentives might be needed, especially if India wants to take advantage from rising trade tensions.

“Indeed, cotton on which China has imposed tariffs on the U.S. was among the top three contributors to India’s exports to China," Joshi and Tandon wrote.

Soybeans are by far China’s top agricultural imports from the U.S. The oilseed, used to make cooking oil and animal feed, accounted for about 60 per cent of the U.S.’s $20 billion agricultural exports to China before the Asian country imposed additional tariffs in July.

The CRISIL economists also called to abolish domestic constraints on coal production and mining as a shortage was leading to a spurt in imports.