India trade deficit with China has already started narrowing
In recent months, India has seen its trade deficit with China falling at a rapid pace demonstrating that apart from the effect of Wuhan Virus, the decoupling process has kicked in.
India’s exports to China surged 78.1 percent year-on-year in June, while its imports from China dropped 43.7 percent during the same period, leading its trade deficit with China to narrow to $1.2 billion from $2.4 billion in May, according to data from the Indian Department of Commerce.
The major reason for export surge was China’s eagerness to commence economic recovery after the severe fallout of the COVID-19 pandemic, so there was demand for resources and raw materials such as chemical products and ores – two of the goods typically imported from India to China.
However the nation wide lock down due to Wuhan virus infection, slowed down various economic activities all over India. Thus over all demand for Chinese mechanical and electrical products, as well as manufactured goods, imported from China slumped down dramatically.
Meanwhile China had started creating tension on the LAC along the Indo Tibetan Border in Aksai Region of Union Territory of Ladhak.Then on 15 June the PLA did the unthinkable by attacking and killing 20 personnel of Indian Army including the Commanding Officer a Colonel.
So after the Galwan attack had taken place, India took a considered decision to decouple economically from China. So In addition to the lowered demand, India has started decoupling from China on economic and trade front. Indians have been boycotting Chinese products and the Government has banned Chinese apps and restricting Chinese investments. This decoupling is being done in a phased manner and thus slowly bringing down India’s import from China.
India aims to completely decouple economically and there by bring down its imports from China to zero level. We also know that therefore our exports to China will also start decreasing. We are prepared for it. As it is why should we export our precious raw material to China.
As China is struggling along a path of rebooting its economic activities, its export sector will take a solid hit and unable to gather momentum. India will keep rolling out restrictions on Chinese products, till decoupling of the two economy is completed.
India, together with Japan, US and Australia, is already promoting a Supply Chain Resilience Initiative, aiming to reduce their dependence on China. These three countries are also trying out a strong industrial complementarities. Many Japanese and American multinationals are already in a process to shift their manufacturing base from China to India and they are being encouraged to do it rapidly.
India offers a relatively cheap labor force and land, had sufficient infrastructure and skilled labor to support large-scale industrial collaboration. Also a similarly sized population with a very large middle class and a prosperous rural area, India can offer a market as attractive as China’s.
Currently India is emerging from the Wuhan Virus lockdown strain. It has been suggested that India should seek broader economic cooperation with South East Asia, BIMSTEC, Oceania and rest of Asia.
