 "Modi must address trade deficit issue with China")
Even before Chinese President Xi Jinping had stepped his foot in India, his country committed to $100 billion investment over the next five years. The announcement follows a $35 billion commitment from Japan over the same period. Though Japan and Japanese companies have been investing in India regularly, China has maintained a distance. From 2000 to 2014, investment from China totalled a paltry $400 million.
Most of the new investments from Japan and China will be in the infrastructure sector, which are long gestation period projects and will be welcomed by the government. Though these investments are more than welcome, what the country immediately needs is investment in manufacturing sector to boost output, employment and resolve supply side issues.
Interestingly, one of the main reasons for a fall in manufacturing was because of cheap imports, ironically mostly from China. Earlier, largely industrial product manufacturers were hit by cheaper imports from China, but with the advent of both organised and online retail, many domestic consumer goods producers have had to shut shop.
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Indian manufacturers can hardly complain about cheap imports since they themselves are able to export to various countries only because India is a relatively cheaper manufacturing base. But China has a distinct advantage over India in terms of manufacturing.
Following reforms in 1979, the Chinese government encouraged exports at all cost in order to boost its economy. This resulted in a number of products being dumped on big markets like India. As of last year, India had imposed anti-dumping duty on 159 products imported from China since 1992 to protect domestic manufacturers. The sectors in which anti-dumping duties were imposed include chemicals, petrochemicals, pharmaceutical, steel, fibres and consumer goods.
As per the Customs Tariff Act of 1975 (amended in 1995) and Rules framed thereunder, domestic industry can seek necessary relief and protection against dumping of goods and articles by exporting companies and firms from any part of the world.
Part of the reason for increasing anti-dumping tariffs is the rising trade between the two countries. Indo-China trade is expected to touch the $100 billion mark, but this is skewed heavily in China’s favour, meaning that India imports more from China than it exports there. A Bloomberg [Link] article points out that trade between the two countries has increased from $1 billion in 2000-01 to $36.2 billion in 2013-14.
The quality of trade is also weighted towards China. While India exports raw material such as iron ore to China, it imports manufactured products, which cost more. There is no denying the fact that China has a distinct advantage over India in manufacturing, given the strong support from the government, cost of funds and other cheaper inputs. Indian exporters have also been complaining about restrictive trade practices followed by China when it comes to imports of manufactured products.
But rising application of anti-dumping duties only signal the complaints that have been launched by manufacturers who are in the organised sector. There is no record of the number of small scale manufacturers who have been put out of business because of cheaper Chinese imports. Retailers, especially e-retailers, have added to the woes of small scale manufacturers in India. An aggressive export policy from China and an equally aggressive policy from importers in India have contributed to India’s trade deficit.
With China exporting to India almost four times of what it imports here, Modi has his task cut out to change the skewed trade ratio when he meets the Chinese President.