India’s Trade Dilemma: Strengthening Ties with China Amid Global Pressures

Context

• India’s trade with China has been shaped by border tensions, trade imbalances, and investment restrictions.

• The 2020 Galwan clash led to strict trade and investment curbs on China.

• Meanwhile, the US is pressuring India to lower tariffs and align with its trade policies.

• As border tensions ease, India is reconsidering trade ties with China while balancing its global strategy.

India-China Trade in FY24

• Total trade: $118.40 billion, making China India’s top trading partner.

• China’s share in India’s total imports: 15%.

• India’s total imports: $675.42 billion, of which $101.74 billion came from China.

Widening Trade Deficit

• India’s trade deficit with China is $83 billion due to:

  • Limited Export Basket: India mainly exports raw materials, lacking high-value goods.

  • Market Access Barriers: China restricts Indian exports in agriculture, pharmaceuticals, and IT.

Chinese Investment in India

• China ranks 22nd in FDI equity inflows into India.

• Cumulative FDI (April 2000 – September 2024): $2.5 billion.

• Despite high trade volume, Chinese investment remains low due to Indian restrictions.

Easing Trade Restrictions on China

Proposed Relaxations

• India is considering easing post-2020 trade curbs by:

  • Reducing tariff and non-tariff barriers.

  • Easing visa restrictions for Chinese business personnel.

  • Reopening access to some banned Chinese apps.

Industry Push for Trade Liberalization

• Indian SMEs and manufacturing sectors advocate relaxed restrictions to ease supply chains.

• Proposed measures:

  • Simplifying BIS certification for Chinese imports.

  • Extending visas for Chinese workers in infrastructure projects.

Balancing US and China Relations

• The US is pressuring India to reduce tariffs.

• Economic engagement with China could serve as a counterbalance.

• A Finance Ministry report supports easing trade restrictions to maintain trade flexibility.

India and the ‘China Plus One’ Strategy

Understanding ‘China Plus One’

• China Plus One (C+1) strategy helps companies reduce dependence on China by diversifying supply chains.

• Key drivers:

  • Rising labor costs in China.

  • US-China trade tensions.

  • COVID-19 supply chain disruptions.

India’s Progress in Capturing C+1

• NITI Aayog (Dec 2024) report: India has had limited success in leveraging this trend.

• However, recent shifts indicate progress:

  • SAIC Motors divesting from MG Motors.

  • Shein re-entering India via Reliance Retail.

India’s Trade Dilemma: Investment vs. Imports

• India must choose between:

  • Increasing Chinese investments for economic growth.

  • Maintaining restrictions to curb import dependence.

• Any trade relaxation will be gradual, aligned with India’s long-term economic goals.