Can India sustain export gains after China, the US strike a trade deal?

India appears to be a winner from the ongoing China-US trade war, with its exports to China, driven by rises in agricultural products, marine products, and chemical products, set for a record in the 2018-19 fiscal year, which ends on March 31.

But will the momentum be sustained throughout 2019?

Given Indian products’ low competiveness in price as well as hefty transportation costs, the extent of the country’s potential exports to China still largely hinges on the outcome of the China-US trade talks, industry observers said.

A resolution between the world’s two largest economies could cut Chinese demand for Indian commodities that would otherwise serve as substitutes for US products, they added.

Between April and December in 2018, Indian’s exports to China were $12.7 billion, close to the $13.33 billion recorded in the full 2017 fiscal year, according to a statement by India’s Ministry of Commerce and Industry that was released on February 8.

The jump in exports narrowed India’s trade deficit with China to about $40 billion, the Global Times learned.

The export expansion has been driven by marine products, organic chemicals, plastics, petroleum products, grapes and rice, said the statement, which also mentioned India is specifically taking note of opportunities in sectors “where the US would lose competiveness in China and where India has export potential.”

Amid the US-provoked trade war, China has imposed retaliatory tariffs on imports from the US since July, which drove up the prices of US products and prompted Chinese companies to turn to alternative import sources to boost their inventories.

India, as a vast agricultural country, has witnessed steady growth in exports to China since last year, especially in farm and marine products such as rice, soybeans, fruit and corn in addition to traditional exports of chemical products, Zhao Gancheng, director of the Center for Asia-Pacific Studies at the Shanghai Institute for International Studies, told the Global Times on Wednesday.

Last year, the two Asian countries signed deals to facilitate certain types of Indian exports. In July, China agreed to import rice from 14 of the 19 registered rice exporters in India, meaning that not only basmati rice but also non-basmati rice from India could be shipped to China, business-standard.com reported.

Effective last July 1, China ended import duties on soybeans from India, which previously stood at 3 percent, the State Council, China’s cabinet, announced in July.

China and India are also at the advanced stage of discussions on signing protocols for the export of Indian soybean meal, cake and pomegranates to China, according to the statement from the Indian Ministry of Commerce and Industry.

Despite the seemingly promising prospects, some industry insiders said that boosting imports from India was a way for China to solve an urgent matter rather than a long-term strategy.

“If the China-US standoff persists, India could steer away from its disadvantages in exports and further tap the opportunity to foster closer trade ties with China,” Liu Xiaoxue, an associate research fellow at the Chinese Academy of Social Sciences’ National Institute of International Strategy, told the Global Times on Wednesday.

Chinese trade officials are set to hold a new round of trade talks with the US from Thursday to Friday, days ahead of a March 1 deadline.

“But if the China-US trade talks yield a positive result, India won’t be able to sustain its new export drive this year, because its products aren’t price-competitive and it has a backward infrastructure network,” Zhao said.

For example, the low level of mechanization on Indian farms and the lack of centralized management have kept the prices of Indian grains above those of competitors in South America, according to Zhao.

Another downside is India’s weak infrastructure such as ports, roads and railways, which “push up transportation costs and reduce India’s ability to ship goods,” Liu said

“India’s manufacturing industry also lags behind China. So there are not too many categories of products that China can import from India except for chemical products,” Liu said.

The trade deficit would widen again in such a case, Liu warned.
Source: Global Times