The ban of exports of iron ore from Karnataka and Goa has widened India’s trade deficit with China despite bilateral trade between the two countries declining by over six per cent to $34.4 billion in the first half of this financial year. India’s trade deficit with China at $21.62 billion now stands at as much as 63 per cent of the bilateral trade between the two countries – the highest proportion registered during the last five years.
A senior official at the Ministry of Commerce & Industry said, “The overall negative global sentiment led to a dip in bilateral trade. While India imports mostly manufactured items from China, exports to the country consist primarily of raw materials and intermediary goods. Ban of exports of iron ore from Karnataka and Goa contributed to the decline in India’s exports to China.”
While exports from India decreased sharply by 19.65 per cent to $6.41 billion between April and September this fiscal, imports from China fell by 2.45 per cent to $28.03 billion in the same period. This led to a ballooning of trade deficit by 4.19 per cent to $21.62 billion. The numbers are alarming as India's trade deficit with China alone accounted for nearly a quarter of India's total trade deficit of $89.25 billion in the first six months of the fiscal.
“If we look at the profile of India’s exports to China, it is dominated by raw materials. Iron ore and cotton together accounts for over 60 per cent of exports to China. If we have to balance our trade, we have to promote exports of value-added goods from India”, said Ajay Sahai, director general, Federation of Indian Export Organisations (FIEO).
India’s main items of export to China currently include petroleum products, gems and jewellery, transport equipment, other raw materials and machinery. Last fiscal, export of ores, slag and ash to China had declined by 3.20 per cent $4.61billion due to slowing production in the country’s steel sector. Export of cotton, however, more than doubled to $4 billion in the period.
Sahai added, “The government has consciously taken a move to discourage export of raw materials and had levied an export duty on iron ore. This is important for maintaining reserves of natural resources within the country. But since manufacturing and labour costs have been on a rise in China, we can now exploit that opportunity and at look at exporting household goods like handmade carpets, textiles, leather products, auto components and pharmaceuticals.”
Some programmes have already been initiated to this end with the government sending exporters’ delegations to China, which are aggressively pushing China to buy more value-added products from India, Sahai, however, contends that it may take 3-5 years before some tangible results come in sight.
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“India is a power deficit country and already huge orders have been placed with Chinese companies to import power equipments from the country. So imports will be strong in mid to short term. In 3-5 years, by pushing exports of value-added products ranging from auto components to inorganic chemicals, we will be able to bridge the trade gap with China”, Sahai informed.
Interestingly, in the last couple of years, import of power and telecommunication equipment from China has seen a huge rise. In 2010-11, import of mobile phones and other kinds of wireless phones reached $4.1 billion, up 60 per cent year-on-year from $2.5 billion in 2009-10.
Indian heavy industries rely largely on import of raw materials and finished goods from China. In the last financial year itself, import of electrical machinery and equipment from China went up by 14 per cent to $13.52 billion, while import of machinery such as nuclear reactors and boilers increased by 34 per cent to $10.35 billion. Similarly, import of project goods increased by 54 per cent to $4.9 billion in the last fiscal from $3.2 billion in the year-ago period.
India has set up an India-China Joint Group on Economic Relations, Trade, Science and Technology in order to address the issue of widening trade deficit.