The government may have a much harder time reining in the deficit due to bulging oil imports, most of which comes from Saudi Arabia and Iraq
As the government plans to provide incentives to boost domestic manufacturing
and drastically cut down on incoming goods, official data shows that India continues to import more from almost all major trade partners than it exports.
According to official data from the Commerce Department, India had a trade deficit with 9 of its top 10 bilateral trade partners at the end of 2019-20, leading to cumulative imports being $113 billion more than exports to these nations. While this figure dropped from the $118 billion registered in the previous year, deficit rose for five countries, while falling for the other five.
While India has maintained a comfortable surplus of more than $17 billion with the United States, its largest export market, deficits have become deeper for all other nations. In 20019-20, the United Arab Emirates (UAE) was the latest entrant in the long list of nations after New Delhi lost its slim $341-million export lead. Tighter norms for diamond trading after successive scams in the sector, slipping market share for Indian apparels and lower export of refined petroleum to the UAE are to be blamed for this, according to the Federation of Indian Exports
The China strategy
On the other hand, imports from China’s special administrative region of Hong Kong have also increased, leading to Customs authorities inspecting charges of rules of origin violations by Chinese exporters. The government is focused on using non-tariff barriers to restrict the free flow of goods, mostly from China.
According to official sources, the government has been gearing up to place tighter restrictions on the import of 371 items — ranging from toys and plastic goods to sports items and furniture — worth $127 billion. “A large chunk of these originate in China and for those goods, we will pursue import substitution,” a senior official said. Electronics, drugs, apparels, and consumer durables from China are also on the list.
But there may not be an immediate hike in tariffs as the move may hit manufacturing
Goods coming from China have seen increased tariffs as policy measures to cut down on non-essential imports have been gaining pace since 2018.
But the government may have a much harder time reining in the deficit due to bulging oil imports, most of which comes from Saudi Arabia and Iraq.
On the other hand, while the discourse has been dominated by whether India should revise its existing free trade agreements or ink new, strategic ones, India’s trading fortunes do not seem to be impacted by them. Only three of the top 10 trade partners — Singapore, Indonesia and South Korea — are nations with which India has already signed a trade pact. The lack of diversity in India’s trade relations has also halted its efforts to reduce the trade deficit.
“The number of nations which have significant trade with India has not gone up as hoped. Increasing the number of markets for indigenous goods and opening sourcing to a wider set of nations will help reduce trade deficit. Much work is being done now with the help of Indian diplomatic missions in various countries to market Indian products,” said a senior Commerce Department official.
Case in point, India’s $113 billion trade deficit with its 10 top partners forms over 70 per cent of its total global trade deficit.