Despite attempts to decouple its economy from China, Delhi’s trade dependence on its neighbour has only increased. This is in spite of the fact that India has seen multiple incidents of border aggression from the Chinese Army, the latest being an attempt to cross the Line of Actual Control in Arunachal Pradesh’s Tawang on Friday.
A close look at the India-China trade data from the Ministry of Commerce and Industry shows that between the first half of the financial year 2020-’21 – when soldiers from the two countries clashed in the Galwan Valley of eastern Ladakh – and the first half of the ongoing financial year 2022-’23, Indian imports from China have increased and exports to its neighbour have fallen.
As a result, India’s trade deficit vis-à-vis China has continued to widen. Trade deficit refers to the amount by which the cost of a country’s imports exceed the value of its exports.
Chinese agression against India
In 2020-’21, India and China were engaged in a series of skirmishes along the Line of Actual Control. A clash between Indian and Chinese soldiers in June 2020 led to casualties on both sides – the first in many decades. Tensions along the dispute border in eastern Ladakh flared with both sides deploying heavy artillery and thousands of soldiers even in the harsh winter months. In January 2021, another minor face-off happened at Naku La in Sikkim.
Swathes of land have since turned into so-called buffer zones after Indian soldiers pulled back from patrolling points along some disputed areas as part of the disengagement process – ceding the space to the Chinese, reports suggest citing locals. Over six decades, China has illegally occupied a total of around 38,000 square kilometres of Indian territory in Ladakh, according to the Indian government. Experts suggest this is China’s “salami-slicing” tactic, which refers to the process of gradually cutting into the opponent’s territory through incremental steps.
Between the first half of the financial year 2020-’21, when the Galwan clash took place, and the corresponding period in the ongoing financial year, 2022-’23, India’s imports from China nearly doubled from roughly $27.3 billion to $52.4 billion.
Electronics, chemicals, medicinal and pharmaceutical products and fertilisers are reportedly some of major goods India continues to import from China. Commerce minister Piyush Goyal told the Rajya Sabha that India’s dependence on imports in such categories “is largely due to the gap between domestic supply and demand”.
Even more troublingly, Indian exports to its more populous neighbour fell from $10.6 billion in the first half of 2020-’21 to $7.8 billion in the first half of 2022-’23.
According to the website of the Indian embassy in Beijing, India’s main exports to China are mainly raw materials such as iron ore, cotton, copper, aluminium, and diamonds and natural gems, which add less value to the economy, unlike China’s export of finished goods.
Trade deficit widens
As a result of rising imports and declining exports, India’s trade deficit shot up from $16.7 billion to around $44.5 billion between the first half of financial year 2020-’21 and the same period in 2022-’23.