India’s merchandise trade deficit stood at $124.7 billion in the April-August period of the current fiscal year. This is a significantly higher number than at any previous time for a comparable period. While rising international commodity prices, especially energy, have played a big part in widening the trade deficit, there are also concerns that China’s imports are rising. How true are such fears? Here are five charts trying to answer that question.
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The role of oil prices in India’s trade deficit
Since petroleum is one of India’s largest imports, trading account is always tracked with and without petroleum products. Figures from the Center for Monitoring Indian Economy (CMIE) database for April-August show that India’s trade deficit is the highest in 2022-23, even if we exclude the petroleum products sub-component from the country’s merchandise trade. As might be expected, the oil trade deficit accounts for a large portion of the overall trade deficit. A more appropriate historical comparison of the trade deficit should be made by looking at it as a percentage of GDP. However, GDP data for the September quarter will not be available until November.
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See Chart 1: India’s trade deficit with and without petroleum products
China’s role in India’s trade deficit
The country’s trade numbers released by the Commerce Ministry are delayed by a month. These data have been available on the ministry’s website since January 2006. This means that an analysis of India’s trade deficit with China can be done only until July of the current fiscal year.
HT’s analysis of these numbers shows that Chinese trade is the driver behind the increase in India’s trade deficit, although it is not the only one. While India’s trade deficit with China for the April-July period of the current fiscal year is at an all-time high, the trade deficit ex-China is also at an all-time high.
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Does the picture change if we compare India’s non-POL trade deficit to China and the rest of the world? CMIE data shows these two numbers are at their highest for the April-July 2022 period. What is certain is that India’s trade deficit with China excluding POL is larger than its trade deficit with the rest of the world excluding POL, underscoring the importance of Chinese imports in India’s trade deficit in goods. Also of note is the fact that while India sometimes runs a non-POL trade surplus with the rest of the world, it has never had a non-POL surplus after 1993 (US$56.8 million trade surplus), which is again the worrying factor Problem highlights Chinese imports.
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See Chart 2: India’s trade deficit with the rest of the world and China excluding POL
What caused India’s trade deficit with China to increase?
The trade deficit is a function of two variables: exports and imports. In the case of India’s overall trade deficit, imports increased so much that the trade deficit widened despite the increase in Indian goods exports (excluding revenue from India’s IT exports, which are services). However, the situation is different with India’s trade model with China. Not only did Chinese imports increase, but Indian exports to China also fell. India’s trade balance with China has turned out to be a double whammy.
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See Chart 3A and 3B: India exports and imports as a whole and with China
What is India’s largest import from China?
More diverse than goods like Diwali lights and consumer goods, India’s import basket from China includes capital goods and high-tech products. An HT analysis of trade data between Indochina and China shows that the top five commodities in the two-digit HS (Harmonized Global Trade Analysis System) classification alone account for more than 70% of India’s imports from China in the April-July period. 2022. A comparison with historical data for the same period shows that these commodities have always accounted for a significant proportion of India’s imports from China. If we were to make a simple comparison of India’s imports from China before the pandemic (April-July 2019), just three of the top five commodities – electrical machinery and equipment, parts and mechanical equipment for nuclear reactors, and organic chemicals – would account for almost 68% of the Increase in imports from April to July 2022. Prima facie, this suggests that the increase in Chinese imports is due to a recovery in the domestic economy.
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See Chart 4: The top five commodities in India’s imports from China
What is India’s biggest export to China?
India’s exports to China include manufactured goods, building materials and several perishables such as fish. HT’s analysis of Indochina-China trade data shows that only the top seven commodities in the 2-digit HS classification account for more than 60% of India’s exports to China in the April-July 2022 period. A comparison with historical data for the same period shows that these commodities have also always been a significant part of India’s exports to China. A simple comparison of Indian exports from China before the pandemic (April-July 2019) shows that the export value of two of these seven main commodities – organic chemicals and ores, slag and ash – fell in April-July. Period.
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See Chart 5: Seven main commodities in India’s exports to China
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