India-China trade deficit widens as latter’s ‘zero-COVID’ policy affects supply chain

China has been India’s biggest trade partner despite bilateral and border tensions. As per official data, from FY17 to FY19, the trade deficit was little changed. Amidst the pandemic and economic slowdown, the trade deficit went down to $44 billion in FY21 but surged to an all-time high of $73 billion in FY22.

Supported by the widening India-China commerce deficit, New Delhi and Washington’s trade relations improved. According to the ministerial data, the bilateral trade between the countries climbed to $119.42 billion in 2021-22, from $80.51 billion in 2020-21.
What is a trade deficit in bilateral commerce relations?

There is a trade deficit if an international transaction account has a negative balance or negative net amount. So, a trade deficit in bilateral commerce relations is when a country’s imports are higher than the exports.

India-China trade deficit
While imports from China increased from 2020-21 to 2021-22, exports remained consistent, thus enlarging the deficit.
According to a report by CRISIL, 15 commodities make up two-thirds of all imports from China compared with just three from India’s third-biggest trading partner the United Arab Emirates (UAE). Bilateral trade with the UAE, India’s biggest trade partner before the US and China, stood at $72.8 billion in 2021-22.
China is the largest supplier of over 16 key imports to India (leaving out petroleum products and precious metals). This high dependency on China results in higher imports.

China had been battling the pandemic with a much-criticised “zero-COVID” approach where authorities had imposed a harsh lockdown. Strict curbs led to a disruption in supply chains. The CRISIL report suggested that the lockdown hit consumption more than the production in China, a factor behind less demand for Indian products.
The positive aspect is that this doesn’t affect the economy since China forms only a small chunk when it comes to exports. However, the supply-chain disruption is likely to persist and impact India’s manufacturing in the long run.
Source: CNBCTV18