India has not joined the RCEP mega deal because of concerns of Chinese imports flooding the Indian market. A new Indian Institute of Foreign Trade paper authored by Sunitha Raju and V Raveendra Saradhi, however, suggests that these concerns about imports from China may be misplaced.

Based on an analysis of comparing trade data from 26 industries with manufacturing output data, the authors claim that imports from China have had a favourable impact on industry output and production efficiency in India. They show that between 2007-08 and 2015-16, growth in imports from China was associated with growth in gross value added (GVA) and output in Indian industries. Of the selected 26 industries, GVA declined for only three industries—steam generators, Iron and steel and games and toys. Categorizing Chinese imports into capital, intermediate and consumer goods, the authors find imports of intermediate goods boosts output the most (growth of 163%), followed by capital goods imports (93%) and consumer goods imports (73%). Thus, the authors argue that imports of intermediate and capital goods from China have the greatest effect on the manufacturing sector.

Competition from Chinese imports also improved overall industry efficiency by forcing out inefficient firms and allowing efficient firms to increase their market share. In particular, this has helped boost the chemicals and pharmaceuticals sector with both sectors improving their export performance.

The authors do point out a potential cost of importing from China: unemployment. They find with more imports from China, employment decreased for 17 industries. The authors also caution that their analysis was limited to only the organized sector and, after considering India’s unorganized sector, Chinese imports may have different effects, especially on productivity and employment.

Also Read: Imports from China: Threat or Opportunity Analysis of Indian Manufacturing Sector

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