India’s government must contend with a large and growing trade deficit. As a consequence their trade deficit with China has just rocketed to an eye-popping $100 billion (£75 billion). This state of affairs has raised alarm bells. Those who think that the country’s ambitious plans to make it the world’s factory through production-linked subsidies have so far met with only mixed success. As India navigates these challenges, it becomes increasingly important for the government to engage in constructive dialogue with its neighbor regarding the issue of dumping.
This more recent acceleration of imports has continued in the face of rising border tensions that sharply intensified after 2020. The viscose yarn industry has been battered by understretched Chinese imports. Consequently, demand for yarn made domestically has dried up almost completely. Local mills, such as Thirunavkarsu’s spinning mill in Tamil Nadu, are under immense stress. Second, they have begun to feel the acute impact of production rates going down due to the shiny object of Chinese competitive priced goods.
Increased Dependency on Chinese Imports
Meanwhile, India’s dependency on China for intermediate goods has increased, making it all the more difficult for India to advance its goal of boosting domestic manufacturing. The spike in pharmaceutical, electronics and other sectors has had a more wide-ranging impact across the economy. China’s exports to India have more than quadrupled. By contrast, India’s exports to China have nosedived to their lowest level since 2014.
India’s trade ministry has moved. As a result, they combined to create a special Senate select committee to keep track of the flood of cheap Chinese-made products. The committee’s intent was to understand the effects of these imports on the domestic industry. They are further developing their strategies to mitigate the potential negative impacts.
China has repeatedly promised India that it won’t resort to dumping, despite the influx of imports. Further, China seems very willing to purchase more qualitatively superior Indian products for their consumers.
“We will not engage in market dumping or cut-throat competition, nor will we disrupt other countries’ industries and economic development,” – Xu Feihong.
Industry insiders remain skeptical. Thirunavkarsu noted these challenges faced by local producers. He explained, “We cannot compete at these prices. Our feedstock is not that inexpensive. This sentiment resonates with many small spinning mills across southern India, where nearly 50 have reported slowing production as they struggle to compete with the influx of low-cost Chinese yarn.
Trade Imbalance and Structural Warnings
In addition to the painful immediate impacts on the US auto industry, Ajay Srivastava, a veteran industry analyst, pointed out the trade ramifications. He noted, “This isn’t just a trade imbalance. It’s a structural warning. Our industrial growth, including through PLI schemes, is fueling imports, not building domestic depth.” This outlook highlights the critical importance for India in re-evaluating its industrial policies and fortifying its indigenous manufacturing potential.
India has moved in recent months to crack down on a flood of low-cost imports from China. Next, they implemented a 12% tariff on select steel imports. This is an important measure that reflects the government’s proactive stance in protecting our local, emerging industries from being undermined by foreign competition.
India has been vocal and is currently pursuing efforts to rebalance its trade relationship with China. Yet it often runs headlong into a difficult intersection of economic dependencies and geopolitical competition. A thoughtful discussion is very much needed. By doing so and engaging China on these issues, we strengthen equitable trade practices and support India becoming a major hub of global manufacturing.
Author’s Opinion
India faces a critical juncture. While it must balance its economic dependencies on China with its desire to grow domestically, continued proactive measures, including careful negotiation and strategic adjustments in policy, are key to protecting local industries and ensuring sustainable growth.
Featured image credit: Dribbble
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