India’s economic strategy has focused on decoupling ties after the ‘trade war’ era Chinese import To develop self-reliance in manufacturing, driven by geopolitical and security concerns. However, a deeper look at trade data reveals a worrying trend: India’s dependence on China is increasing, according to a report. Elara SecuritiesIn CY23, about 68% of India’s exports – based on four-digit HS codes, included imports from China worth at least USD 100 million – saw an increase in the share of imports from China, which stood at 59% in both CY19 and CY15. % Was.
China’s dominance in global exports, especially with respect to capital-intensive products, presents a significant challenge for India in establishing a manufacturing ecosystem independent of Chinese influence. It said the ratio of capital-intensive imports to consumer goods imports from China increased to 7.26 in CY23, compared to 5.17 in CY19.
Chinese FDI: A new approach is needed
Despite China’s significant presence in global manufacturing, there may be merit in being more pragmatic about this despite the need to protect the domestic market. foreign direct investment (FDI) from China, in the absence of which India trade deficit Escalation will continue through the cycle of implementation with China Make in India And production linked incentive schemes. The government’s Economic Survey 2023-24 makes a similar case for increasing India’s presence in the global value chains. Currently, only 0.1% of India’s FDI inflows come from China, but 15% of its imports come from China.China’s share in India’s trade deficit is 36%, while its share in FDI is only 0.1%.
However, India’s trade deficit with China has declined from a peak of 47.1% in FY2017 to 35.7% in FY2014, compared to FY20 (before launch). self-reliant india campaign in 2020), India’s trade deficit with China has increased by 5.6% during the same period. Note that the moderation in FDI from China to India began much before the implementation of Press Note 3, which made it mandatory for FDI coming from countries sharing land borders with India to seek government approval, it said. Countries such as Vietnam, Mexico and Cuba have benefited from both China +1 and Chinese FDI as the country looked to diversify into other sectors to remain relevant in global trade.
China’s import share is increasing in India’s 68% exports.
It said an in-depth examination of 197 export items of India per four-digit HS code (including those with annual import value of at least $100 million from China) revealed the extent of India’s dependence on China. Interesting facts emerge. The percentage share of imports from China in around 133 such items increased from 59% in CY19 to 68% in CY23. For example, for items like integrated circuits, the ratio of imports by China to exports by India in that category of HS code is 47, up from 14.5 in CY19 and 9.6 in CY10. Similarly, for transformers and converters, the ratio has increased from 0.4 to 0.7 during the same period.
A steep increase in tariffs by the US on Chinese EVs (100% hike), solar cells (50% hike), steel, aluminium, EV batteries and some minerals (25% hike) could accelerate the flow of Chinese products into India. In volume terms, already this fiscal year, among major products, imports of iron and steel products grew by 76% year-on-year, rubber and commodities by 82% and cotton by 370%.
Import of capital goods from China – India is ahead of world growth rate
China’s share in world capital goods exports is about 20%, making it an irreplaceable player in the global value chain. India’s recent capital formation cycle (in particular, domestic manufacturing and assembly in electronics and hardware) coupled with the Make in India campaign has led to an increase in component and equipment imports from China. Capital goods imports from China have seen a CAGR of 19.23% during FY19-FY23, while those for consumer goods and intermediate goods have seen 9.6% and 11.54% respectively. Over the same period, Chinese capital goods exports to the world witnessed a CAGR of 8.4%.
While tariff protection and domestic manufacturing incentives are helping to limit imports of consumer goods from China, low entry barriers for capital goods and relatively inelastic demand have increased imports of capital goods. With India’s capital expenditure cycle as well as the domestic manufacturing cycle still in its early stages, we do not think this trend will reverse any time soon.
