Dropping barriers

New Delhi must find ways to prise open China's markets

Speaking on the sidelines of the autumn meetings of the World Bank and the International Monetary Fund in Bangkok recently, Union Finance Minister Nirmala Sitharaman highlighted concerns about India’s “exponentially growing” trade deficit with China. The minister pointed out that the problem in this case was not high tariffs but non-tariff barriers, which limited Indian companies’ market access in China. Phytosanitary rules, for example — safety regulations of various kinds — limited imports into China of Indian generic drugs, bovine products, and vegetables. For these sectors, among others, missing out on the large and growing Chinese market is a major problem. Meanwhile, Indian imports of Chinese goods, particularly in electronics, continue to grow at a rapid pace.

 

Ms Sitharaman’s statement has highlighted a problem that Indian trade policy may not currently be set up to address. India has entered into several free-trade agreements (FTAs) — and the one with New Zealand, for example, is coming into force today. These are important steps, in that they open up access to several vital markets, including the European Union and the United Kingdom. But Indian producers also need to expand their access to other countries, including emerging markets. China’s unwillingness to drop its non-tariff barriers is a major impediment in that effort.

 

To be sure, too much energy has been diverted over the past 18 months in dealing with the fallout of United States President Donald Trump’s attempt to derail global trade. In trying to minimise the effects of Mr Trump’s volatility on US-India trade, the government has sent conflicting signals on the progress of a bilateral deal with the US. It is unclear if talks are “plateauing”, as Ms Sitharaman has said, or if they are poised for a breakthrough, as some of her colleagues in the Cabinet have implied. But either way, the government cannot allow US-India relations to be its sole focus. The larger questions — such as reforming the multilateral trading system and ensuring that China plays a more responsible role within it — must also be made a priority.

 

Over the past year or so, India has attempted to reset its relations with China away from the lows plumbed after the clashes on the Line of Actual Control in mid-2020. Partly this was to ensure that Beijing placed no impediments in the way of the development of India’s high-end mobile-phone industry, which is dependent on supply chains that run through the mainland. This is also, as it happens, why concerns about increasing imports from China in the past couple of years should not be overstressed. If those imports are of intermediate inputs, to which value is added in Indian factories before being sold domestically or re-exported, then it is not necessarily a negative. The focus should, therefore, not be on the deficit or the scale of imports, but the failure to scale up exports to China. The finance minister is to be commended for making this point. It should be followed up by a comprehensive strategy that centres market access in New Delhi’s discussions with Beijing. It should be made clear that normalising the relationship will be dependent upon the Chinese leadership’s own choices about goods. It is not enough to drop tariffs. A broader acceptance that other non-tariff barriers must be lowered, alongside a step-by-step plan to accomplish that, should be a priority for India’s engagement with its northern neighbour.