India’s Trade Balance With China Improves But Will It Last?
China has become India’s largest trading partner over the years, as bilateral trade between the neighboring nations has exceeded India’s trade with U.S.A and U.A.E. However, trading ties have been skewed in favor of China with imports outstripping exports.
Figures for the current financial year indicate that India’s trade balance with China has improved marginally, although economists are skeptical about whether the shift will sustain.
According to data available from the April-October 2018 period, India’s merchandise trade deficit with China narrowed to $33.3 billion from $36.8 billion in the same period last year. This, even as India’s overall trade deficit has increased to $113.2 billion compared to $91.3 billion in the April-October period last year.
The improvment in trade balance has been driven by both a fall in imports and a pick-up in exports.
Imports Moderate; Exports Rise
Imports from China fell by 2 percent year-on-year to $42.6 billion in the April-October 2018 period. Exports, meanwhile, surged 40 percent to $9.3 billion over the same time frame.
The currency may have had a role to play in the changing trade dynamics, said Vivek Kumar, principal economist at Yes Bank. While Rupee depreciation relative to the Yuan may have contributed to a pick up in exports, the currency movement along with the imposition of duties on imports by the government, may have made imports more costly, he said.
Earlier this year, the government had hiked customs duties on several commodities such as electronic items, including mobile phone components, in a bid to curb India’s current account deficit. While higher duties were imposed only in late September, it appears to have impacted electronic imports on the margin.
Data available shows that the percentage of electronics in overall imports from China has declined from 37.5 percent of all imports until the last financial year to 30 percent of all imports until September in the current financial year. A break-up of the data for October is not available.
On the export front, petroleum product exports have risen. They constituted a fifth of all exports to China for the current financial year until September, up from 11 percent in the financial year ended March 2018. Other major exports to China, such as cotton and organic chemicals, have also seen a rise in share.
India appears to have benefited from adverse developments in U.S.-China trade ties, said CRISIL economists Dharmakirti Joshi and Pankhuri Tandon. China may have been looking at India to substitute for some of its exports from the U.S., they explained. But with tensions between the two nations easing, export growth to China may cool off, they noted.
According to data collated by BloombergQuint, export growth to China is declining after spiking to 82.3 percent in June 2018 on an annual basis. Imports grew 4.9 percent in October 2018 on an annual basis, after having contracted for most months in the current financial year. Trade data tends to be volatile and it may be too soon to draw a definite conclusion, cautioned Joshi and Tandon.