Atmanirbhar Bharat & ballooning trade deficit with China

WTO partners caution India against protectionism

Business

October 20, 2021

/ By / New Delhi

Atmanirbhar Bharat & ballooning trade deficit with China

China is India’s largest trading partner, having displaced the United States from the top-notch last year

After over a year of Atmanirbhar Bharat scheme, India’s trade deficit races to record levels, including with China despite the border tensions. While some may argue that it needs more time to make its impact felt, many leading trade partners have already cautioned against India using the self-reliance policy to practice protectionism.

India’s overall trade deficit in merchandise trade in the first six months of the current fiscal, from April 1 to September 30, 2021, jumped sharply to USD 78.81 billion, up from USD 25.7 billion last year, a hike of 207 pc, though the deficit stood marginally lower than USD 88.92 billion registered in the same period in 2019.

While the sharp growth in deficit from 2020 is easily explained by a revival in trade after a year of near-total shutdown due to the Covid-19 pandemic, there is little reason to cheer from the fact that trade deficit this year is lower than 2019 as the Indian economy is yet to regain pace or come anywhere close to its shape in 2019. It can also be explained, to an extent, by the massive supply crunch in various electronic products like chips and semiconductors that have crippled the global automobile industry and a broader logjam in supplies across various sectors.

As the supplies crunch eases over the next few months and the domestic economy begins to rediscover its pre-pandemic shape, one can reasonably expect both exports and imports to rise even faster and the trade deficit to expand even further.

The biggest concern for India should come from its deficit with China, which is already USD 46.55 billion in the first nine months of the current calendar year. This is a jump from USD 44 billion recorded in the full last year and is only marginally lower than the USD 53.57 billion in the year before.

Overall, Indo-Chinese trade this year, from January to September, has already reached USD 90.37 billion, a phenomenal growth of 49.3 pc when compared to the previous year. China is already India’s largest trading partner, having displaced the United States from the top-notch last year.

India-China buy buy

Though not a surprise at all, the sharp growth in trade with China does stand in sharp contrast with the political realities on the border as instead of a resolution, the stand-off between Indian and Chinese troops all along the 3500 km long border that separates the two Asian giants, has only worsened. With each passing month, it seems that the Chinese troops occupy an increasing share of Indian territory as reports suggest that in Ladakh alone the Chinese troops now occupy nearly 12,000 sq km of Indian land. There have also been similar incursions by the Red Army in Uttarakhand, Sikkim and Arunachal Pradesh. Also, China has upped the ante significantly with India by massively building or upgrading military infrastructure all along the border, including airbases, highways, railways and even townships as they have done in Arunachal Pradesh.

With the total intransigence being displayed by the Chinese in border talks with India and their refusal to withdraw from Indian territory or even acknowledge their incursions into India, the border tensions are unlikely to subside anytime soon.

Yet, the trade with China now seems to be unstoppably growing and that, too, heavily in the favour of the Chinese, putting paid to yet another much-hyped initiative of the Narendra Modi government, the Atmanirbhar Bharat, which, as usual, is a rebranded decades-old policy of Indian self-reliance which has been in place ever since the independence in 1947.

In 2020, at the peak of the pandemic, the government propaganda machine launched it with unprecedented hype, presenting it as a never-before, never-after and unique policy ‘revolution’ invented by the genius of the ‘master-tactician’ Modi. The stated goal of the initiative was to make India the global hub of manufacturing, a daydream that has not been limited to Modi, but indeed several global leaders.

Yet, India’s total trade deficit with the entire world, not just China, has been rising sharply. Overall imports for India in September alone, the latest month for which the data is available, India imported goods worth USD 56.38 billon, a growth of 84.75 pc compared to September 2020 and it is, rather surprisingly, a jump of 49.58 pc over September 2019 when total imports stood at USD 37.69 billion.

Whither Atmanirbhar Bharat

A study of the composition of Indian trade shows that the country continues to rely on low-value raw materials or semi-processed materials rather than high value goods that seem to have become the norm of most developed nations and even China.

For instance, in 2020-21, India’s key exports to China included iron ores and concentrates, cotton, light oils and preparations as well as shrimps and prawns. In all, the top 10 export items accounted for as much as 40 pc of total Indian exports to the giant neighbour. But Indian import list included mainly finished goods such as portable digital automatic data processing machines, processors and controllers or photo intensity semiconductor devices.

As the government is bound to discover, if it is still ignorant, India in many ways has missed the manufacturing bus long ago. In fact, all through Modi government rule, the share of manufactured goods in Indian GDP has consistently fallen and is now close to 15 pc, far away from the stated target of 25 pc as set by Modi seven years ago when he had ‘launched’ another of his pet projects, Make in India.

Despite several initiatives over the past seven decades, India has failed to emerge as a manufacturing base largely because a number of cogs that go into making the wheel of manufacturing move ahead are missing in India and without a well-thought and well-implemented, rather than over-hyped, policy this scenario will not change.

Moreover, India is not China2.0 in manufacturing. China had its industrial revolution moment several decades ago and has since then made itself almost indispensable to the world. India is far from replicating the Chinese model as over the past few years, the global trade situation has evolved dramatically not only with emergence of other export powerhouses like Vietnam for electronics and Bangladesh for textiles, but also several developed nations have relaunched their own manufacturing industry in attempt to boost local jobs.

Moreover, with many nations aggressively policing their trading partners, not many countries are likely to stand by and watch in the unlikely event of Atmanirbhar Bharat actually taking off and leading to some plausible results.

Within months of the scheme being announced and launched, the United States and several other nations had said that the scheme could be violative of India’s commitments under the World Trade Organisation rules. Earlier this year, the then US ambassador Kenneth Juster had expressed doubts whether the scheme was compatible with India’s stated intention to be part of the global value chains and carve out a reputation as an exporter to the world.

‘‘If India’s self-reliance programme led to higher tariff and non-tariff barriers to trade, this would limit India’s capacity to truly integrate into global value chains and, in the process, raise prices for Indian consumers,’’ Juster had said at an event in New Delhi. If indeed, the scheme starts to pay off for India, one can reasonably expect a number of nations attacking India at the WTO.

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