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How India became dangerously addicted to Chinese imports
Image source: AFP via Getty Images
Image caption: Xi and Modi have vowed to address growing trade imbalances
By Nikhil Inamdar
Mumbai
Published 43 minutes ago
Take a walk into an Indian toy shop and, aside from choosing a new favorite plaything for a child, you might gain insight into how the nation grapples with a challenging economic relationship with its powerful neighbor, China.
Six years ago, in an effort to boost local manufacturing and prevent substandard toys from entering the market, India raised tariffs on imported toys from 20% to 60%, and eventually to 70%. Retailers expressed concerns that domestic firms couldn't compete with foreign products. However, the combination of higher customs duties and quality control standards proved effective.
Indian imports of toys fell by a third, from nearly $300 million in 2020 to $100 million this year, while exports rose from around $129 million to $200 million during the same period. Furthermore, the country significantly reduced its dependence on China, which held a 70% share of the local toy market.
The toy sector stands out as a rare success story in India's otherwise unsuccessful attempts to rebalance its increasingly lopsided trade relationship with China.
Even as diplomatic ties between the two countries hit rock bottom following the Galwan Valley clashes in 2020, and Delhi imposed a slew of anti-dumping duties and banned Chinese apps like TikTok, the trade deficit with Beijing has only widened—from $44 billion in 2020 to a staggering $112 billion this year.
"India's economic dependence on China continued to deepen while political, security, and investment ties were at their lowest point," said Kevin Zongzhe Li, a Washington-based Fellow at the Asia Society Policy Institute's Center for China Analysis, in conversation with the BBC.
More alarmingly, exports to China remain below pre-pandemic levels, while imports have doubled during this period. If the current pace of imports continues, the bilateral deficit could surge to $134 billion, giving Beijing even more leverage over Indian industry, according to Ajay Srivastava of the Delhi-based Global Trade and Research Initiative (GTRI).
Image source: Bloomberg via Getty Images
Image caption: Anti-China sentiment reached a fever pitch post border skirmishes in 2020, but relations have since thawed
On the sidelines of the Brics summit in Delhi in September, as a deepening thaw occurred between the Asian giants, Prime Minister Narendra Modi and Chinese President Xi Jinping pledged to address "structural trade imbalances and supply chain issues."
However, given the deep-rooted nature of Chinese imports within India's industrial economy, this will be a formidable challenge for Delhi, experts tell the BBC.
Primarily, India relies on China not only to consume end products but also to produce industrial goods.
Although India has reduced its dependence on imports of finished goods such as smartphones and solar equipment, and now manufactures more than a quarter of the world's iPhones, production remains largely assembly-based and heavily depends on imported components, particularly from China.
As Srivastava notes, "Yet, production remains largely assembly-based and depends heavily on imported components, particularly from China."