China slowdown impacts India’s exports, trade deficit goes up

India’s trade deficit with China has risen to USD 45 billion in 2015, largely on account of a decline in its exports to Asia’s largest economy. India’s exports to China shrank to USD 13.38 billion as bilateral trade registered a marginal increase, totaling USD 71.64 billion, missing USD 100 billion target set by the two countries.

Bilateral trade registered a marginal increase compared to USD 70.59 in 2014. China’s exports went up to USD 58.25 billion while India’s export to China was USD 13.38 billion, declining from USD 16.4 billion in 2014.

The slowdown in Chinese economy, leading to recession in the steel industry, impacted the export of iron ore by India – the single largest commodity in India’s export basket for China.

A rising dollar only added to the woes. Indian exporters claim that this is having a negative impact on their profits. If the unofficial trade between the two countries is taken into account, the trade deficit is more than USD 48 billion. India has been pressurising China to open up its markets especially in the IT sector and pharmaceuticals that are its key strengths. The ballooning deficit over the years bodes ill for India-China economic relations as it could make bilateral trade increasingly unviable, from the Indian point of view.

During Prime Minister Narendra Modi’s visit to Beijing in May 2015, India and China agreed to form a special task force to address the widening trade deficit. The setting up of task force has still not made progress so far.

As the deficit problem continues to grow, India has been wooing China to step up investments in ‘Make in India’ and other areas such as infrastructure. So far Chinese investments have amounted to around USD 3 billion, according to Development Research Center of China.

In the backdrop of a slowing Chinese economy, the increasing deficit would make it that much more difficult to make the bilateral trade reach the USD 100 billion target in the near future. The marginal increase in trade this year showed that it will be an uphill task to reach the USD 100 billion mark.

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