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International relations

India keeps pushing to cut trade deficit with China

New Delhi aims to capitalize on trade war and uses RCEP to pressure Beijing

India's Prime Minister Narendra Modi, left, and Chinese President Xi Jinping. (Source photo by Reuters)

NEW DELHI -- Despite a narrowing of India's trade deficit with China recently, New Delhi is calling on its neighbor to absorb more of its products to further bridge the gap.

"That kind of deficit is not economically sustainable, and it can also become politically sensitive if we don't take steps to address the deficit," Indian ambassador to Beijing Vikram Misri recently told state-run China Daily in Beijing. India's trade deficit with China is running at above $53 billion.

In the financial year ended March, Sino-Indian trade stood at $87 billion, down 3% from a year ago. Indian exports rose by 26% and imports fell by 8%, shrinking the deficit by $10 billion.

In part, the U.S.-China trade war has helped. India exported more marine products, organic chemicals, plastics, petroleum products, grapes and rice to China after Beijing slapped retaliatory tariffs on these goods from the U.S. Some analysts see the trade war spurring even more shipments.

But even with such a big progress, deep concerns remain within the administration of Prime Minister Narendra Modi.

Commerce and Industry Minister Piyush Goyal tried to assuage worries last month by pointing to the steps the government was taking to narrow the trade deficit by lowering trade barriers for Indian exports to China.

He said India had been trying to push its agricultural, dairy and pharmaceutical products to China. He also said that various protocols have been signed to facilitate the export of rice, rapeseed meal, tobacco and fish-meal to China.

For its part, Beijing expressed its commitment to addressing the issue in March at a China-India meeting in New Delhi on economic relations, trade and science and technology.

An official statement issued after that meeting said Beijing also pledged to accelerate the opening of its market to products such as Indian soya-meal, pomegranate and beef, among others.

The two sides agreed to draw up "a medium- and long-term road map with action points and timelines for increasing bilateral trade... in a balanced and sustainable manner," the statement added.

Separately, India has been using negotiations for the Regional Comprehensive Economic Partnership to seek closer cooperation with Beijing on bilateral trade. Other than China and India, RCEP also involves Japan, South Korea, Australia, New Zealand and the 10 members of the Association of Southeast Asian Nations.

Yet, despite all these developments, India released a statement on July 9 saying that market access in China had been "particularly problematic."

"The Indian industry is not convinced that RCEP will create a win-win situation for all by ensuring balanced outcomes... across the key pillars, particularly goods and services," it added.

Some analysts said that nations such as Japan and ASEAN members that are keen to push RCEP forward would try to convince China to give in more to India.

Chinese President Xi Jinping, left, with Indian Prime Minister Narendra Modi in Shandong Province, eastern China in 2018.   © AP

Others are skeptical about the narrowed trade deficit and said more needed to be done. Although India has cut its trade deficit with China by $10 billion, its trade deficit with Hong Kong has risen 25% to $5 billion in the last fiscal year.

"China, it seems, has diverted its exports via Hong Kong to assuage India's concerns," said Shamshad Khan, a visiting fellow at Policy Research Institute based in Japan. "To know whether the trade deficit has nearly narrowed, we should adopt a separate methodology when it comes to China. Either consider Hong Kong [and] China as one entity or look at whether India's export to China has grown substantially."

India and China are the largest emerging economies, with 35% of the world's population and around 20% of its gross domestic product, but the relative volume of bilateral trade is less than 1% of the global total.

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