China Commerce Minister arrives today: India to push on huge trade deficit

India's import from China was $61.3 bn and exports stood at a much lesser $10.2 bn, leaving in its wake a massive $51.1 bn trade deficit in 2016-17

Chinese Commerce Minister Zhong Shan reaches New Delhi on Monday for official trade talks. In the backdrop of a possible trade war between the United States and China, India is looking to get China to reduce tariffs on our export, senior government officials suggested.
 
The bilateral engagement, under the aegis of the India-China joint economic forum, will be significant for India since Beijing has decided to discuss India’s ballooning trade deficit, commerce and industry minister Suresh Prabhu said.
 
India’s import from China was $61.3 billion and exports stood at a much lesser $10.2 billion, leaving in its wake a massive $51.1 billion trade deficit in 2016-17.The government has been worried by increasing friction between the US — India’s largest export destination — and China, India’s largest import source, which could lead to a fall in global demand and rise in the cost of trade.
 
However, Delhi also feels the current situation offers an opportunity to push for trade concessions from Beijing. “After the lengthy military standoff between both nations at the disputed Doklam plateau of Bhutan, further conclusive talks on trade issues looked slim but Shan’s visit signifies they want to engage a major trade partner,” an expert said.
 
Trying hard to find balance
 
Both nations signed an agreement in September 2014 to achieve bilateral trade balance by 2019. The five-year programme is a joint medium-term road map for promoting trade and investment.
 
“The agreement acknowledges the pitfalls of one-way trade but since it is non-binding, the scope of deliberations with regard to reducing the trade deficit depends heavily on intent, as well as the presence of a free environment for discussion,” a senior commerce ministry official said.
 
The agreement also talks of easing of restrictions by the Chinese government against high potential export items from here, such as bovine meat, fruit & vegetables and basmati rice. Of these, only basmati has seen a breakthrough, with 14 firms allowed to  export to China in 2016.
 
The government is throwing its weight behind a long-term plan of revising the export basket to China. Raw materials like cotton, iron ore and copper have come under scrutiny as the government and exporters try to shift priorities towards value-added products. The ministry has identified key sectors such as hardware, electronics, pharmaceuticals, textiles and auto components to boost export.

Aiming higher up the value chain
 
“The government aims to slowly but steadily revise its export basket to China, so that over the next few years, higher forex-earning value added goods make up the majority of export rather than raw materials,” the official said.
 
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. The commerce ministry is egging domestic firms to step up into this space, spread across textiles, leather and food processing, among others.

But, this is expected to take time. In the last financial year, India’s highest export earners with regard to China were iron ore, cotton and organic chemicals worth $1.4 billion, $1.3 billion and $887 million. These, with other raw materials like copper, constituted more than 70 per cent of India’s export to China, said Ajay Sahai, director general Federation of Indian Export Organisations.
 
“However, the trend is slowly changing. While now cotton is increasingly being imported from China and manufactured yarn exported back, the reverse was true five-six years back,” he added.
 
Currently, the top five export categories to China are all input products. These are used by China to manufacture costlier goods, which it then ships abroad — often back to India. India imports products much higher up the value chain from its northern neighbour with electrical machinery topping the list at $21.98 billion, organic chemicals at $5.61 billion and plastic articles at $1.8 billion.