Don’t fear trade deficit:  & China agrees to tackle trade imbalance:

Don’t fear trade deficit:  & China agrees to tackle trade imbalance:

Context

• India’s trade deficit with China, which stands at over $50 billion, has been projected by many on the Indian side as an economic evil that needs to be curbed by all means.

Matter of Concern

• Amidst rising political tensions between India and China, trade relations between the two countries have come under some pressure recently.
• There has been demand of bans on heavy tariffs and Chinese imports.
• The trade deficit with China, in effect, is seen as a loss to India and a gain to the Chinese economy.

Balance of Trade

• The balance of trade reflects how an economy earns its foreign exchange, and how it decides to spend it subsequently.
• In the case of India’s trade deficit with China, India earns Chinese yuans primarily from Chinese investors who seek to invest in assets in the country.
• Successively, India uses these yuans that it receives from Chinese investors mostly to purchase Chinese goods, rather than to invest them in Chinese assets.
• This fondness among Indians for Chinese goods rather than assets, combined with Chinese preference for Indian assets rather than goods, causes India to suffer a trade deficit.
• Ideal situation would have been when Indians had a greater preference for Chinese assets, and the Chinese had a greater preference for Indian goods.
• The situation would then reverse and India would enjoy a trade surplus instead.
• The trade deficit is thus a mirror image of a capital surplus, which is formed by the relatively larger inflow of Chinese capital into India than vice versa.
• It is high time irrational fears over trade with China, or any other country, are put to rest once and for all.

China will be sending team to India

• China has agreed to send a high-level official team led by Commerce Minister Zhong Shan by December-end to address the issue of growing trade imbalance with India.
• The development could be termed a breakthrough for India which faces a ballooning goods trade deficit with its neighbour.
• China is keen to ensure that trade with India is not adversely affected by the prevailing military tension.
• In case of a full-fledged ‘trade war,’ China will have much to lose with its goods exports to India in 2016-17 valued at a whopping $61.3 billion against India’s shipments worth just $10.2 billion to that country.
• The trade deficit was $52.7 billion in 2015-16.

Addressing India’s concern

• Beijing had decided to address India’s concerns regarding China’s ‘Sanitary and Phytosanitary measures’ hurting Indian farm products exports to that country.
• Chinese authorities have also decided to look into India’s request to remove the ‘curbs’ on Indian pharmaceutical companies/products, especially those having the approval of American, European and Japanese regulators.
• Beijing would also soon take a call on eliminating the difficulties faced by the Indian IT/business process management sector in getting greater market access in China.

Anti – Dumping duty

• Anti-dumping duty is in power on 93 products concerning imports from China, covering products in broad groups of chemicals and petrochemicals, products of steel and other metals, fibres and yarn, machinery items, rubber or plastic products, electric and electronic items and consumer goods.
• “In addition, 40 cases concerning imports from China have been initiated by Directorate General of Anti-Dumping and Allied Duties.”
• On August 22, Indian Embassy in Beijing said the decision to impose anti-dumping duties on the 93 products were taken over a course of previous five years.