Spike in imports, fall in exports widen India's trade deficit with China

In FY22, India's trade deficit with China was recorded at $72.9 billion, up nearly $29 billion from FY21's figure of $44 billion

After falling in 2020-21, India's trade deficit with China widened in 2021-22 and continues to do so in 2022-23, the Ministry of Commerce data showed. In the financial year 2021-22(FY22), the trade deficit was recorded at $72.9 billion, up nearly $29 billion from FY21's figure of $44 billion. In 2020-21, the trade deficit was recorded at $48.6 billion.  

What is widening the trade deficit between India and China?

The trade deficit is the difference between the imports and exports of the country (Here, imports are greater than the exports). When the imports rise, and exports fall, the deficit widens. Also, if imports rise more than exports, the deficit widens.

In May 2022, India exported goods worth $1.6 billion to China, over 25 per cent lower than the $2.1 billion in May 2021. In April and May combined, the exports fell nearly 31 per cent from $4.4 billion in 2021 to $3 billion in 2022.

On the other hand, the imports recorded a growth of 5.47 per cent in May 2022 compared to the same month last year. For April and May combined, the imports grew 12.75 per cent in 2022 compared to 2021.

In India's case, imports from China have risen. At the same time, exports have fallen, leading to a higher trade deficit.

The Ministry of Commerce and China's General Administration of Customs (GAC) figures reveal that for the second year straight, India and China may hit a total trade figure of $100 billion. In 2021-22, the total trade volume between the two neighbours stood at $115 billion.

Why are India's exports declining?

China has been under strict lockdown due to the resurgence of Covid-19 cases. This has led to a fall in demand for goods that were majorly imported from India, including iron ore, cotton and meat.

A report by Mint quoted a commerce ministry official as saying, "China was our second largest export destination in the first half of 2021 with a share of 6.8%; however, it has declined to 5th position in the first half of 2022 (share: 3.7%) as exports have been destined to the US, UAE, Netherlands and Bangladesh."

Why are imports from China rising?

Chemicals used in industries are a major part of India's import basket from China. A Mint report stated that as India is showing growth in the manufacturing sector, the need for such chemicals has also gone up.

Besides that, India's pharma sector relies heavily on raw materials from China for manufacturing medicines and other pharma products. These are then exported to other countries.

This comes just two years after the government of India gave the call to make India self-reliant or 'Aatmanirbhar'.  

The Centre has also been proactive in implementing the production-linked incentive (PLI) scheme to boost the manufacturing sector in India.

In a recent interview, NITI Aayog chief executive officer (CEO) Amitabh Kant told Business Standard that the PLI scheme would help put India on a firm footing in the global value chain by creating competitive firms.