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Rising imports widen trade deficit with China

The trade deficit with China continues to soar at a blistering pace even as India is looking at aggressively increasing and strategising the reach of its products into the Chinese markets. The trade deficit which was $19 billion in 2009-10 rose to $23.87 billion in the last financial year. Analysts say there are indications that by the end of current financial year it might widen to a whopping $40 billion.

In the last couple of financial years, import of power and telecommunication equipments has seen a huge rise. In 2010-2011, import of mobile phones and other kinds of wireless phones reached $4.07 billion, up 60.1 per cent year-on-year from $2.54 billion in 2009-10. Similarly, import of project goods rose to $3.17 billion last financial year from $2.06 billion in 2009-10, up 54.08 per cent.

"We mainly import cell phones, project goods, digital products, chemicals, urea and machinery parts. However, what is rather unknown is that Chinese imports to India are quite diversified with a whole range of products accounting for a very small proportion of total imports from China, but in aggregate, they added to up to huge sum of imports," said Ram Upendra Das, senior member of a New Delhi-based think tank Research and Information System for Developing Countries (RIS).

Experts also said the Indian heavy industries significantly rely on raw materials and finished goods from China. The top five items of import from China are electrical machinery and equipments ($11.86 billion), mechanical machinery and appliances ($7.7 billion), project goods ($ 3.2 billion), organic chemicals ($3.85 billion) and iron & steel ($1.99 billion).

"We have undertaken the task to reduce our power deficit through massive sector reforms which have encouraged many companies to enter into power sector. These companies are placing order on China for supply of power equipments which besides cost effective are also delivered timely. Similarly, we are seeing major revolution in telecommunication sectors with increasing teledensity and higher use of mobile phones. In the first four months of the current financial year, our deficit with China has almost touched $13 billion which is giving indication that the deficit may swell to $40 billion by the end of current financial year," said Ramu S Deora, president, Federation of Indian Export Organisations and chairman of G Amphray Laboratories.

Deora also said there needs to be a "sea change" in India's strategy in order to increase exports to China. He also added that India needs to look at a more "aggressive strategy" to reach every corner of the Chinese markets and build a credible consumer base. He said with change in demographic profile, China is all set to exit from labour intensive sectors of exports leaving the field open for India and other low-cost manufacturing countries.

"We can revisit our strategy for exports of garments, textiles, leather, organic and inorganic chemicals also to China," he added.

Experts also believe that India has also not been able to access the Chinese markets in areas where it has considerable market expertise such as pharmaceuticals and information technology.

"Lack of adequate research and development in such industries in India has led to increased imports of these products from China to meet the growing domestic demand. It is crucial for our domestic industries, especially those like OEM's, in which India has considerable global competitiveness, to expand its portfolio and global outreach," said Pradeep Mehta, secretary general of CUTS International.

China has become successful in changing the way Indian consumers think today. From bright and shiny 'Ganesha' idols to creative Diwali lights, Chinese goods have become a part and parcel of Indians today in almost all the urban markets across the country.

According to Das of RIS, this is happening all the more because importers are placing large number of orders with the Chinese due to a competitive pricing which, in turn, is inducing demand. "They are present in small shares but in a large number of areas and they have achieved this competitiveness due to massive manufacturing competence and they know how to influence buyers thinking," Das emphasised.

Anwarul Hoda, professor, Indian Council for Research on International Economic Relations (ICRIER) believes that unless India charts out a long-term strategy to face the influx of Chinese goods into Indian markets, the trade deficit would continue to balloon.

In an effort to tame the ballooning deficit, Ministry of Commerce and Industry is working on a China specific strategy paper to identify the areas in which it can leverage Indian shipments to China. Some of the key focus areas that have been identified by the strategy paper are information technology, drugs and pharmaceuticals, textiles, chemicals, carpets, woven fabrics and leather products among others. The strategy paper would also deal with measures on how to gain more access of the Chinese market in terms of services trade with a liberal visa regime, according to commerce department officials who are involved in the process.

"There can be a variety of ways to increase our exports. These may include from bilateral negotiations for tariff reductions to forging production network links with southeast Asian countries to access their market, to establish joint ventures with Chinese companies for exports to joint ventures with developed countries in the Chinese market as tariff jumping FDI," Das said.

According to Mehta, since India and China form a significant part of the BRICS Grouping also, raising trade barriers would not be viewed as a viable option.

Mehta said that since China is now increasingly focusing on boosting domestic consumption due to the ongoing financial turmoil, India should look forward to increase exports to cater to the likely increase in domestic consumption.

Both countries have decided to increase bilateral trade to $100 billion by 2015. In order to achieve this target Prime Minister Manmohan Singh has selected Anil Dhirubhai Ambani Group (ADAG) chairman Anil Ambani to head the much ambitious India-China CEOs Forum.

The CEOs Forum, which was announced during the visit of Chinese prime minister Wen Jiabao here in December last year, would also comprise who's who of the Indian industry as its members. Some of the prominent names in this are Anand Mahindra, Tulsi Tanti, N Chandrasekharan, Yusuf Hamied, Prashant Ruia, R Seshasayee, Baba Kalyani and Gautam Adani.