While the ruling Communist Party of China is mulling emergency measures to bolster growth, Indian exporters say trade can only grow with the country’s largest trade partner. They argue China can’t do without the large amounts of raw materials like organic chemicals, iron ore, and cotton that make up more than 70 per cent of India’s export basket of $13.33 billion to China.
This is set to jump as Beijing actively shifts economic activity from labour-intensive mining and low-end manufacturing to value-added, tech-enabled products. As average wages rise across the country and the population ages, the country has set a target of five years to complete this transition.
Raw materials galore
China has increasingly relied on Indian mining products. Its share in India’s exports - at 4.3 per cent - is expected to rise, says Ajay Sahai, director-general of the Federation of Indian Export Organisations. “The current trade war has put pressure on south-eastern nations like Vietnam, which exports components and tech products to China. It hasn’t affected India’s exports, which rose more than 32 per cent in the July-November period,” Sahai says.
Organic chemicals remain the largest exports from India to China. The $2.1-billion worth of exports, registered in 2017-18, has already been breached within the first eight months of the current financial year. The same goes for processed crude oil, $2.3 billion of which has already been shipped, up from $1.4 billion in 2017-18.
“The trade war has cut down on shipments from the US, and both raw cotton and yarn from India continue to penetrate the Chinese market. Knee-jerk reactions from the Trump Administration have made US firms cagey of dealing with China, fearing backlash,” said Siddhartha Rajagopal, executive director of The Cotton Textiles Export Promotion Council.
In the last financial year, one out of seven cotton consignments from India went to China. India’s exports of $1 billion worth of cotton to China has, however, held steady.
Low-end manufacturers also hopeful
Even makers of manufactured products remain hopeful. “China is exiting the manufacturing of a large number of basic, labour-intensive products. Due to their focus on value addition and pollution reduction, units have shut down across the country. Our exporters are set to secure large contracts for forging and casting products,” said Ravi Sehgal, chairman of the Engineering Export Promotion Council. India is the second-largest source of casting goods globally and continues to boost capacities.
“The only barrier to India’s export growth is the Chinese policy of actively reducing the gamut of imports that go into their exports, signalling its transition to a complete design-and-build stage with focus on domestic ancillarisation,” said a commerce department official.
At the same time, imports from China are also set to grow. Inbound shipments were a staggering $76.38 billion. While imports had held steady or risen marginally over the preceding two years, lndia bought almost 25 per cent more Chinese goods in 2017-18 (FY18).
India’s trade deficit with China has widened to more than $141 billion in the first eight months of the current financial year as the value of the rupee nosedived. In FY18, a disproportionate share of the $162 billion total trade deficit was due to India racking up almost $76 billion in trade deficit with China.