India-China border tension: Bilateral trade unlikely to be significantly impacted

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A bulk of India's imports from China consists of capital goods like power plants, telecom equipment, metro rail coaches, iron and steel products. A lot of finished products like fertilisers, refrigerators, washing machines and air conditioners are also imported from China. In the intermediate products section, components for industries like electronics and mobile phones, autos, pharmaceuticals, chemicals and plastics, engineering goods also come into the country from China.

A look at our exports to China shows that it comprises mainly primary products like iron ore, agricultural products, with manufactured products accounting for only a small proportion.

China is one of India’s leading trade partners and constitutes 9 percent of India’s total exports and 18 percent of total merchandise imports.

Import dependency on China for a range of raw materials (APIs, basic chemicals, agro-intermediates) and critical components (auto, durables, capital goods) is skewed. Of the respective imports, 20 percent of the auto components and 70 percent of electronic components come from China. Similarly, 45 percent of consumer durables, 70 percent of APIs and 40 percent of leather goods imported are from China.

In 2018-19, India’s exports to China were mere $16.7 billion, while imports were $70.3 billion, leaving a trade deficit of $53.6 billion.

To address this dependence on China, prime minister Narendra Modi has announced a policy shift in making India self-reliant."India's industry leaders need to invest in building robust local supply chains that will strengthen India's position in the global chain," prime minister Narendra Modi said recently.

Though India's trade dependence on China is considerably large, its relationship with its neighbour has been fraught with tensions in the recent past. India withdrew from the sixteen country Regional Comprehensive Economic Partnership trade negotiations in November due to unreasonable Chinese stance on certain core concerns.

The spread of the COVID-19 pandemic, which originated in China, in the world and also to India, led to prime minister Narendra Modi shifting India's policy stance to self reliance, in order to make Indian products more competitive in the global supply chain.

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This has been followed by the India-China border dispute. At least 20 Indian Army personnel were killed in a violent face-off in Ladakh's Galwan Valley on the night of June 15-16. Four more Indian soldiers are said to be in critical condition.

"In the short to medium-term, I don't think there's going to be an impact of this (border dispute) on India-China trade. We are dependent on China in certain industries where there are no alternative sources available," trade expert Biswajit Dhar, professor at Jawaharlal Nehru University’s Centre for Economic Studies and Planning, said.

The continuous tensions with China has led to a call for a boycott of Chinese goods from the Indian markets, despite the government trying to explain that Atmanirbhar Bharat is not a call for protectionism and is not directed towards China or any other country.

"There will be a lot of talks on boycotting Chinese goods. But the market will take its own course. So as long as there is a demand, there will be Chinese suppliers to meet that demand," Dhar said.

According to IDC (International Data Corporation), Chinese companies accounted for more than 70 percent of all smartphones that came into India in the January-March quarter of 2019. Government data shows that electronics accounted for $20.6 billion of total imports from China.

Read our complete coverage on the India-China border tension.