Raw materials continue to dominate India's top exports to China

Tough talk on Chinese goods in FY20 leads to lower imports, narrowing trade gap

Even as shipments of high-value manufactured goods to China saw an uptick in the fiscal year 2019-20 (FY20), raw materials continue to dominate India’s top exports to the neighbouring country.
 

Though the government has been pushing for exports of high-value manufactured goods across major markets in place of raw materials and input goods, India’s top exports to China remain in the raw materials category, shows the latest data released by the commerce department for FY20.
 

Apart from organic chemicals and processed petroleum, most of the top shipments to China comprised raw materials, despite traditional export items such as raw plastic and cotton seeing a decline. Notably, shipments of iron ore shot up to $2.3 billion in FY20, up from $950 million in the previous financial year.
 

However, at the same time, key sectors being pushed by India, such as medical devices and electrical equipment, continue to see slow but steady rise in exports to China. “Due to the sudden changes in the bilateral trade brought on by the global Covid-19 pandemic, shipments of machinery saw a marginal decline, while regulatory hurdles on Beijing’s part restricted the exports of pharmaceutical goods,” said a senior commerce department official.

 

“China has been very effectively using non-tariff barriers to curb imports that it wants to avoid. On the other hand, it also uses these restrictions as a political tool to control bilateral relations,” said Biswajit Dhar, senior trade policy expert and professor at the Jawaharlal Nehru University.
 

A report by the Confederation of Indian Industry (CII) has pointed out that since 2012, China’s exports have increasingly moved up the value chain, with accelerated growth in high-technology items, such as telecommunications equipment, automotive products, cellphones, etc.
 

The government’s move to expand the export basket to China, especially in the agriculture segment also seemed to have paid off. Apart from high-value pepper and coffee, shipments of marine products rose to $1.3 billion.
 

Imports go down
 

Amid calls for boycott of Chinese goods following the recent military stand-off at the Line of Actual Control in Ladakh, imports from China have declined for the second year straight to $65.26 billion, narrowing the trade deficit to $48.6 billion in FY20.

However, while the trade deficit shrank to a five-year low, the rate of closing the gap faltered in the previous financial year.

Case in point, India had managed to shave the trade deficit by $9.48 billion in 2018-19, but it managed to reduce the same by only $4.9 billion in 2019-20.

 

However, with widespread anger at the Chinese administration for hiding the extent of the pandemic as well as geopolitical shifts forcing major manufacturers to move facilities out of China, the trade deficit may continue to narrow, say experts.
 

In FY20, all key imports from China saw a decline. Imports of mobile phones and their components — the largest single area of imports — saw the biggest drop at $5.47 billion in the latest year, down from $7.22 billion in FY19 and $15.4 billion in FY18.

The Centre has over the past three years strategically increased incentives to boost component manufacturing through various schemes.
 

In the latest year, imports of printed circuit boards, displays and batteries also fell.
 

The government is gearing up to place tighter restrictions on the imports of 371 Chinese items, including electronics, drugs, apparels, toys and plastic goods, sports items, and furniture, among others. Stringent product quality standards and incentives for domestic manufacturers are being drawn up to cut dependence on China for imports.
 

The commerce department’s current import substitution rules do not favour increasing tariffs on goods from China as the move may hit manufacturing in India. However, a contingency plan, prepared by the government, bats for increasing duties on the top 100 imports from China.