China surpasses the United States to become India’s top trade partner even as bilateral political relations sour

The last 2 years were full of incidents implying growing hostility between the two Asian neighbours- India and China.  The border clash that happened between the two countries in early June of 2020 was a turning point in India’s bilateral relationship with China. This clash further increased the already growing anti-China sentiment that the country had been encountering, calling for boycotts of Chinese products and imports altogether. It definitely was undeniably hard for India to suddenly severe or reduce ties with its Asian counterpart, especially because of the country’s heavy reliance on cheaper Chinese imports for raw materials, organic chemicals and manufacturing parts. However, India did protect and safeguard its interest in the very sensitive situation of their bilateral relationship, by banning apps like Tiktok, PubG and other hundreds of tech apps that were considered to be a threat to national security, especially because of the nature of their privacy and regulatory terms.  In an official statement that was released on the subject matter, it was said that the “app was prejudicial to sovereignty and integrity of India, defence of India, the security of the state and public order.”

The asymmetry between trade relations was very evident even back then, when the number of imports by India from China amounted to $62 Billion in 2019-20, while the exports from India to China amounted to only about $15.5 billion worth of products. This asymmetry in terms of trade and investment was one of the most prominent reasons for India’s difficulty in reducing or cutting trade ties with its hostile neighbour. But India did indeed impose stricter foreign direct investment restrictions on China after their FDI curbs seeking prior government clearance mandatory for any direct investment. So, despite all the ups, downs and sidetracks, China has returned as India’s top trading partner in the name of multilateralism and promotion of the common good, even though the tensions at this point are high as ever.

According to the data released by the Delhi Commerce Industry for the international trade amounts, China leapfrogged the United States to emerge as India’s biggest trade partner for 2020, with a two-way trade amount between the Asian neighbours ranging to USD 77.7 billion worth of goods and services, despite the longstanding economic and strategic rivalry.  Even though it is noted that the amount of trade between the two countries for 2020 is lower than the last year’s, which stood at $ 85.5 billion in total, there are no two ways about the fact that the amount is still a significant one, especially considering the pandemic that halted many activities like international trade and exchanges for some part of the year. China coming up as the biggest commercial partner might be a shocker in political terms, especially because of national interest in the 2 countries’ bilateral relations, but it makes complete sense economically because as expressed before, China does play a significant role in India’s electronic, telecom and manufacturing sector, amongst others.

USD 77.7 billion in global trade with China, including both imports and exports of goods and services and other transfers, of which Chinese imports stood at a total of $58.7 billion, is a reflection of the country’s standpoint at the self-reliance agenda, especially after its efforts to curb trade with Beijing. Note that despite the global trade halt between the countries due to the Coronavirus pandemic, the strong demand for medicinal equipment and essentials shot up, resulting in a significant trade amount. As can be seen from the numbers given in the aforementioned statement, the asymmetry of trade between India and China is still persistent at its full swings, despite contrary efforts, pointing at the still pertinent difficulty in reducing dependence on China. Also note that the amount of the imports from China, which stood at $ 58.7 billion, is more than India’s combined purchases from its second and third largest trade partners, namely the USA and UAE. It is thus safe to say that India’s heavy reliance on cheaper Chinese imports is still a very significant amount and the band or FDI restrictions haven’t really played many roles in realising the country’s self-reliance vision.

China maintained its position as the top trader with India for quite some time, surpassing other countries with a huge margin back in 2017. In 2019, however, the US overtook China to claim its position as the top trade partner country with India, which the people would’ve expected to remain like this because of the bloody conflict between the 2 countries back in June, an incident that took place after about 45 years of border peace. But as is mentioned time and again, India’s dependence over China for its imports surpassed the national cries of boycotting, and by a significant margin. The trade gap of about USD 40 billion between India and China is one of the prominent reasons for China’s dominance over the Indian markets because their cheap imports provide an easier alternative to Indian manufacturers and other industry individuals. As observed, China’s growing tensions with other countries like the USA and Australia also pose a chance for India to be seen as the global manufacturing hub, along with the current outsourcing destination. However, self-reliance and development of the manufacturing sector via significant infrastructural development are some of the key prerequisites that are needed to realise this goal in the near future.

On the brighter side of the story, the trade gap as mentioned above has thus reduced for the two countries, with India’s exports to China increasing by about 11 per cent from last year, which is more or less a good development. This also means that if the country amidst the tensions chooses to impose stricter restrictions on trade with China, then New Delhi’s export revenue would also take a hit, along with other factors like telecom and electronic industry dependence. So, irrespective of anything, it is imperative for the country to first work on some crucial areas within itself before paying much heed to the bilateral conditions. As said by International trade and investment specialising economist, “still a long way to go.”