India China Trade to Cross $100 Billion in 2021

In the midst of the pandemic, the supply chain disruptions caused by China and the Doklam/Ladakh stand-off, it was expected that Indo-China trade would get impacted. But, what has happened, is the exact opposite. India-China merchandise trade looks set to cross $100 billion comfortably for the calendar year 2021 and actually end up much higher.

For the first 9 months of 2021 ended September, trade volumes (imports plus exports) touched an all-time high of $90 billion. For the first 9 months of 2021, China saw its total trade spike by 22.7% to $4.38 trillion. India has been one of the many countries that has not only imported extensively from China but also boosted its exports to China.

If you look at the Indo-China trade from India’s perspective, the total trade at $90 billion is 49% higher than the corresponding 9 months in 2020. Even if one were to argue that 2020 was an exceptionally weak base due to the pandemic, the current trade with China is 22% higher than the pre-pandemic period of 9 months ending September 2019.

In a way, the benefits of trade have worked both ways. For example, India’s total merchandise imports from China were up 51.7% at $68.46 billion. On the other hand, India’s exports to China were also up by 42.5% at $21.91 billion. That also means that India’s trade deficit with China touched a record level of $46.55 billion in the first 9 months of 2021.

The bigger worry is the composition of trade. India’s exports to China are predominantly iron ore, base metals and cotton. Most of these are low value added products. On the imports side, if you leave out the emergency imports of oxygen concentrators, the predominant imports from China were electrical and mechanical machinery.

One perspective is that the import of machinery will have productive downstream effects and hence the deficit is acceptable. However, it is also true that China now accounts for 40% of India’s total trade deficit. The bigger question is whether this trade pattern is consistent with overall policy of the Indian government that has been trying to underplay China’s role in various investments and technology on security grounds. That remains a puzzle.

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