Tackling
the Growing Trade Deficit with our Industrious Neighbours
It was not more than a decade ago that
industry experts, policy formulators and other extraneous potential
stakeholders attempted to convince the Government to embrace a more proactive
strategy with regards to engaging the Chinese in greater trade. Over time, both
the Asian behemoths have embarked on their individual trajectories of
socio-economic progression. We may have our fair share of differences –
political, ideological, economic, and military – but undeniable is the fact
that a stable strategic relationship with the Chinese is integral to our future
growth prospects as a rapidly emerging economy. Set in this backdrop, trade
between the two nations has blossomed and China has gradually become India’s
biggest trading partner. A measure of this can be gauged from the fact that
trade with China has boomeranged almost 160% to amount to USD 24 Billion since
2006-07.
However, a cursory glance at the figures is
not liable to paint one a complete picture. While holistic trade over multiple
sectors has certainly improved and increased by appreciable levels, India’s
trade deficit with China too has also escalated. The trade deficit is the
difference between a nation’s exports and imports with a corresponding trade
partner nation. While imports of Chinese goods has risen from USD 17.6 Billion
in 2006-07 to USD 43.5 Billion in 2010-11, Indian export to China pales in
comparison, up from USD 8.3 Billion to USD 19.6 Billion over the same five year
period. China accounts for more than a fifth of India’s trade deficit. This
escalating trade imbalance has not gone unnoticed and has emerged as a domain
of alarm for the incumbent Government. In its endeavour to tackle this growing
deficit, the Government is exploring myriad measures.
Amongst the many options the Centre is
presently mulling over, imposing higher tariffs on a majority of imported
Chinese goods appears to be a viable option. It proposes a blanket ban on specific
products such as power and telecom equipment; sectors that are increasingly
becoming dependent on Chinese imports at the expense of other domestically or
internationally procured equipment and infrastructure. It also postulates that
it should be made mandatory for Chinese companies to enter into Joint Ventures
(JVs) with their contracted Indian firms prior to the import of heavy equipment
and machinery from China; consequently marginally diluting their position of
strength that they seemingly enjoy in the present scenario. There is also an
increasing likelihood of gradually substituting Chinese goods with those from
Japan, Taiwan and South Korea as a direct consequence of having to deal with
lower tariff barriers.
One must note that the Commerce Ministry
hasn’t just drafted a modified “China Trade Strategy” overnight. The ever
increasing trade deficit has been rightly taken cognizance of and brought to
the notice of the concerned authorities as well. Indian officials say that
China has openly acknowledged the trade deficit issue but has continued to
pursue its seemingly self-serving uni-dimensional ways and consequently, has
done precious little to address the pressing situation at hand. In fact, China
has shown scant regard for India’s repeated requests and proposals that could
have significantly reduced the widening trade gap. Some of the requests include
the reduction in import duties on Indian pharmaceuticals, agro produce, IT
products, heavy equipment and machinery. China may have promised to look into
the matter but as is often their wont, apart from furthering their interests by
adopting a carefully calibrated market penetration and consolidation strategy
(primarily through the effective albeit frowned upon use of Predatory Pricing),
they have failed to take into consideration Indian concerns. Hence, the plainly
evident lack of favourable response from China has compelled the Commerce Ministry
to draft the fresh proposal in order to counter the increasing trade inequity.
On the face of it, the aforementioned
proposals do hold promise. However, a policy remains steeped in inefficacy if
it fails to come to fruition. The intricacies of the revised policy ought to
take into consideration the inputs from the concerned industries it is most
likely to impact – Power and Telecom amongst others – in the long run. Drafting
a more comprehensive policy with strategic revisions and obtaining
implementation clearance isn’t the only obstacle in the Commerce Ministry’s
path though. Experts believe that the increasing dependence on Chinese goods
will only make restrictions on their import that much harder. Opposition to the
imminent policy change is liable to stem from the Indian industry itself.
Additionally, also at a time when the clarion call espousing the multifarious
benefits of an open market devoid of amplified Governmental intervention is at
its loudest and nations are increasingly entering into Free Trade Agreements
(FTAs), India’s interventionary stance to reduce its trade deficit with China
maybe perceived as retrogressive by international quarters. So the Government
sure has its work cut out on multiple levels, as far as tackling the trade
deficit with China is concerned. Proactive policy formulation continues to
remain the need of the hour. The question though that needs to be answered is:
“Is the Government willing to take tough decisions that may cause a veritable
degree of consternation amongst Chinese ranks in the larger scheme of things?”
Pradyut Hande
The Writer is presently pursuing his Bachelors in Business Administration at NMIMS, Mumbai. He attempts to address myriad issues of both domestic and global consequence, ranging from Business and Economics to Geopolitics...from Sports to Arts and Culture.
The Writer is presently pursuing his Bachelors in Business Administration at NMIMS, Mumbai. He attempts to address myriad issues of both domestic and global consequence, ranging from Business and Economics to Geopolitics...from Sports to Arts and Culture.
