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NEW DELHI/BENGALURU : China overtook the US to return as India’s largest trade partner with $11.49 billion worth of goods traded in July, data released by the commerce ministry showed, underscoring the country’s growing reliance on its northern neighbour.

In comparison, trade with the US stood at $11.08 billion in July, amid a demand slowdown and recession fears in the US.

Taking the lead
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Taking the lead

The growth in trade with China is largely on account of a surge in imports and near-flat growth in exports to the US during the month. Exports to the US in July grew by 0.41% to $6.78 billion, while imports from China expanded by 45% to $10.2 billion.

The department of commerce had earlier contested China’s official data that showed Beijing was India’s largest trading partner in 2021-22. Delhi countered it, saying the US was India’s largest trading partner that year.

The US, however, remained India’s largest trading partner in the four months ended 31 July, with shipments worth $46.2 billion, more than China’s $40.4 billion.

Meanwhile, the trade deficit with China is widening, with exports to the neighbouring nation contracting 44% to $1.26 billion in July, increasing the trade gap to nearly $9 billion, which is about a third of India’s overall trade deficit during the month. Exports declined even on a month-on-month basis.

“Exports to China may have declined for two reasons. First, China may be imposing some non-tariff measures and, second, exports from countries with whom China has a trade agreement may have an advantage over our exporters," said Arpita Mukherjee, professor, ICRIER.

Queries emailed to the ministry of commerce and industry on Wednesday remained unanswered till press time.

In April-July, India’s outbound shipments to China declined by 33% from a year ago. Incidentally, India’s imports from China grew by 16% in July from June’s $8.8 billion. Major imports from China in July included ‘coke and semi-coke of coal’, antibiotics, fertilizers, silver, parts for motor vehicles, electrical transformers, air and vacuum pumps, printing machinery, and electrical apparatus for line telephone.

About $154 million worth of silver was imported from China in July, growing more than 20,000 times when compared with a year ago. Air and vacuum pump imports rose 82% in July to $111 million. Refrigerator and air conditioner imports rose by 90% to $49 million during the month. Electrical transformer imports grew 22% to $120 million. Electronic integrated circuits imports stood at $425 million but were 3.2% lower than the year earlier. Imports of parts of motor vehicles grew by 62% to $119 million.

Biswajit Dhar, a professor at Jawaharlal Nehru University, said import dependence on China is consistently rising as the Indian economy regains its growth momentum. “Over the past couple of years, the government has taken several measures to beef up domestic manufacturing capacities, including through the PLI scheme, so that import dependence on China can be reduced. But these measures have not been effective," he added.

A commerce department official said while the decline in exports to Beijing is largely due to a change in the direction of India’s exports away from China, the growth in imports from China has largely been driven by imports of capital goods and intermediate goods. Imports of consumer goods and raw materials constitute a smaller fraction of total imports from China, he said. He added that major items like chemicals used in industrial products imported from China are used in meeting growing demands for industrial inputs. Imports like active pharmaceutical ingredients and drug formulations provide the Indian pharma industry with raw material for producing finished goods, which are then exported, he said.

Reflecting a sharp US demand slowdown, India’s exports also saw an 8% sequential fall in July to $6.7 billion, from $7.3 billion worth of shipments in June. On the other hand, in April-July, imports from the US have grown by 35%.

Diamond exports to the US fell 16% to $832 million in July from a year ago. Jewellery with artificial stones’ exports at $258 million is 28% lower than last year. Turbojets exports at $51 million are 46% lower y-o-y. Electrical transformer exports at $60 million are 14% lower than last year. However, tractor exports doubled to $55 million. Parts and accessories of motor vehicles exports at $182 billion were up 8% over the previous year.

Ajay Sahai, director general of the Federation of Indian Export Organisations, said India has a very balanced growth in exports and imports with the US, unlike China, where our exports have taken a hit while import growth remains unabated. However, in our overall imports also, China’s share has come down from 15.5% in FY22 to 13.5% in April-July 2022, which is quite significant.

Anil Bhardwaj, secretary general of the Federation of Indian Micro and Small and Medium Enterprises, said India’s manufacturing relies very strongly on China. “These PLI schemes in chemical, electronics and several other sectors are brought out to address these issues. So, most of these schemes have not taken off. So, in the short-to-medium term, the reliance on China will continue," he said.

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