India Never Had A Surplus Trade Balance In Last 47 Years

By Nantoo Banerjee

It is difficult to understand why India is constantly falling prey to China if it is fully aware that China is heavily dumping exports, often “supplying goods at less than raw materials costs.” The question is pertinent in the context of India’s Commerce and Industry Minister Piyush Goyal’s recent outburst as moderator at a panel discussion with trade ministers of G20 nations in Delhi where he openly asked Chinese Vice Minister (Commerce) Wang Shouwen: ‘how can you supply goods at less than the raw material cost?’ Goyal must explain why India is forced to import so heavily from China in the last nine years knowing fully well China is dumping goods. How are those dumped imports from China impacting India’s domestic producers of similar items? In 2014, when the BJP-led NDA government came to power, India’s imports from China were worth around US$58 billion. Last year, according to the UN COMTRADE database, India’s merchandise imports from China jumped up to $102.25 billion.

While Goyal explained why India did not join RCEP fearing a higher trade deficit with China, Chinese vice minister (commerce) Wang Shouwen said, on the contrary, the India-China trade has been growing steadily despite India’s decision to exit from the RCEP programme. “The concern is slightly different, bilateral trade is skewed in favour of China. The industry feels that if we had entered RCEP, trade would have definitely increased, but the trade deficit would have increased further,” Goyal said. The Indian commerce minister further stated that with China being the recipient of maximum anti-dumping and anti-subsidy questions from many parts of the world, including India, importers wonder how China prices its exports. “It is a matter that I think all the ministers would like to know how you can supply goods at less than the raw material costs,” he added.

However, the Chinese minister was nonchalant. Wang practically chided Goyal and paid little attention to the Indian commerce minister’s remarks around Chinese export dumping as he said despite India’s decision to stay out of RCEP, the trade relations between the two countries have been growing very fast. “Last year, bilateral trade reached $130 billion. If there is an FTA, either bilateral or in RCEP context, the trade potential will be much further tapped to the benefit of our two people. It is your decision on joining RCEP, but RCEP doors will always remain open for India,” Wang Shouwen responded. Wang’s statement gives an impression that India has little choice but to import more and more from China. Even the rising diplomatic bitterness between the two countries and China’s frequent military muscle flexing along India’s land borders from the Ladakh region to Arunachal Pradesh has failed to impact India’s hugely growing deficit trade with China. Does Goyal have a specific answer to Wang’s comments? Why does India import so heavily from China?

Even as India brags off being the world’s fifth largest economy, the country is becoming increasingly import dependent and the trade deficits are escalating almost every year. The last time India witnessed a favourable balance of trade was wayback in 1976-77 — known as the ‘Emergency’ year — to the tune of Rs.86 crore when one US$ was worth only around Rs.8.5. The first time India showed a favourable trade balance was in 1972-73. The amount was Rs.104 crore. The exchange rate then was Rs.7.5 for a US$. These two financial years are the only periods in the history of post-independent India, in which the country had a favourable trade balance. Currently, India has trade surpluses only with a few countries such as the US, United Arab Emirates, United Kingdom and Vietnam. India’s overall exports (merchandise and services combined) rose by 13.84 percent year-on-year to $770.18 billion in 2022-23. Overall imports rose at a sharper pace of 17.38 per cent to $892.18 billion during the last fiscal.

India’s overall trade deficit widened to $122 billion in 2022-23 as against $83.53 billion in the previous financial year. When it comes specifically to merchandise exports, India’s global rank was 19th with its exports aggregating only $447.46 billion. In 2022, China exported goods worth $3.59 trillion across the world, recording a seven percent rise over the previous year. As against India’s import-led economic growth, exports pushed China’s economy to become the world’s second largest after the US. Since 1995, China has been consistently booking trade surpluses. In 2022, the trade surplus surged 31 percent to $876 billion — the highest since China started maintaining records in 1950 — with exports rising seven percent and imports up only one percent. Of China’s trade surplus, last year, as much as $101.02 billion was on account of India alone, shooting up from the level of $69.38 billion in 2021. This is despite India’s opting out in November 2019 of the China-led 15-nation trade block, the Regional Comprehensive Economic Partnership (RCEP), believed to be at the behest of Swadeshi Jagran Manch, a pan-India rightist RSS arm to protect and develop Indian business and industry.

It is time that Goyal and his election-bound government take a strong decision on how to contain imports from diplomatically aggressive China and tackle the ‘dumping’ issue. Nothing that India imports from China is unavailable in other parts of the world. The present government has been in power since May 2014. It is a long time to formulate and practice an import-export policy that focussed on a balanced economic growth. Most countries having tense diplomatic relations with China are curtailing imports from China. For instance, through the first five months of 2023, US imports from China were down as much as 24 percent from the same period a year ago, according to the US Census Bureau. The US media reports say several of the country’s MNCs have been repositioning their supply lines for American consumers, either to avoid the risk of being pinched between rival superpowers or as part of a longer-term strategy to produce goods closer to customers. India must follow a similar practice to drastically cut imports from China. (IPA Service)