Trade deficit with China has lessons for India

Abhijit Bhattacharyya
Author and columnist

India wisely decided to avoid the China-led Regional Comprehensive Economic Partnership (RCEP) owing to the possibility of being overwhelmed by most of the 15 nations with whom India had a deficit bilateral trade balance. Similarly, India rightly refused to play second fiddle to Communist Party of China (CPC) general secretary Xi Jinping, who masterminded the Belt and Road Initiative (BRI), a sub-unit of which is the China-Pakistan Economic Corridor (CPEC). The latter is a malicious project of Xi, epitomising the CPC-Pakistan Army-ISI collusion to violate Indian sovereignty. Since India astutely saw through the CPC malware game of turning every “small and economically weak ally” a vassal state under the “multilateral” cloak of RCEP, BRI and CPEC, the Delhi rebuff to the Dragon is understandable and justifiable.

So, let’s go to the worsening India-China bilateral commerce and trade balance figure which is inexorably leading to a point of no return. Lack of foresight, plan and anticipation are writ large in Indian policy. And that could be the recipe for irretrievable, irreversible and irreparable long-term damage. It’s India’s time to “perform or perish”.

That things aren’t in good shape were reiterated by none other than the Foreign Secretary’s public wailing: “India’s trade deficit with China is widening continuously.” Ironically, the data of India-China bilateral trade originated “from China General Administration of Customs” as reportedly “India’s official statistics on bilateral trade with China are updated only till July 2021”. So, even in the uploading of normal info into a public domain website, India lags behind? How will then the State plan and formulate policy without on-time, not to speak of real-time info?

The matter is serious, to say the least. The total India-China bilateral in the first 10 months (January 1 to October 31, 2021) has already crossed $100 billion which is bound to go further up by year-end. However, what’s more serious is that India’s trade deficit (in 10 months) already stands at a whopping $54.37 billion, up from $29.86 billion in 2020 and $42.96 billion in 2019.

One had said before too, on India-China bilateral trade figures from 1999-2000 onwards, that unless and until India’s Ministry of Commerce and Foreign Trade Division seriously study and revisit the entire gamut of policy, India will continue to lag behind as one of the Third World importing countries, thereby losing its potential stature and status in the comity of nations. To do so, if India takes a hard look and emulates its adversary also, so be it. There’s no harm learning from an adversary if the State achieves its professed goal. Else, the media report of October 17, 2021, will continue to embarrass the establishment no end: “Chinese imports defy self-reliance push, border issues” and “despite tension, India-China trade crosses $100 billion” (November 10, 2021). Can that be music to the ears of the policy-makers in India’s Ministry of Commerce and Foreign Trade?

A sample re-visit to Delhi’s trade deficit through two decades may be in order. Thus, from minus $1.282 billion in 1999-2000, the deficit graph skyrocketed to $52.697 billion (2015-16); $57.869 billion (2017-18) and now $ 54.37 billion in the first 10 months of 2021, the break-up being China’s $78.33 billion, to India’s

$23.96 billion. Chinese export value is 3.269 times that of Indian goods to China.

It’s, therefore, time for the Government of India to take an ‘action stations’ position, without any ifs and buts. Learn from the numero uno adversary CPC! The Chinese path to success was dictated by the State, not by fancied free market economics or laissez faire. India simply cannot be handed over wholesale to private entrepreneurs because it has got to plan for 1.4 billion people, which under no stretch of imagination can be handled by a few ‘mega’ profit-seeking investors, industrialists and importers. India’s population is way above that of the US (330 million) or Russia (130-140 million). Fifty-plus European nations account for less than 600 million people. They too follow the traditional concept of an inclusive “welfare state”.

Today’s world undoubtedly faces the most challenging of times. All the more, because contemporary world demography is already over 7 billion with massive asymmetric growth of sectoral poverty and declining prosperity across Asia, Africa and Latin America. Whereas the West’s manpower is on the wane, Third World citizens are searching for jobs, money and migration.

Regarding the Chinese growth story, it is a case of “national self-interest”; “inclusive growth and development of China”, not for foreigner, however, friendly one posed or professed. Thus, it revolved around “needs, problems, demand”. There is a list of sectors meant only for State-owned enterprise (SOE), like India’s public sector undertaking (PSU), some of which are now on sale.

Defence, electricity, oil, petrochemicals, telecommunication, coal, aviation and shipping couldn’t be with a foreigner or in private hand. Aside, there are the “pillar industries” wherein strong State presence is a sine qua non or indispensable: “Equipment manufacturing, auto-making, electronics, construction, steel, non-ferrous metal, chemicals, surveying and scientific research.”

Things, however, went haywire for China owing to trade deficit. A “1984 consumer goods spending spree” caused the “government to lose control over imports” as the 1985 deficit shot up to $15 billion and the 1984 foreign exchange reserves plummeted from $14.42 billion to $11.19 billion in 1986. China ‘sucked’ imports, thereby becoming a compulsive borrower of foreign fund “to finance trade deficit”, averaging $1 billion to $1.5 billion a month.

Understandably, the CPC hammer fell hard on reckless import, with a follow up of manifestly deliberate devaluation of its currency: yuan/renminbi. Thus, whereas in 1980, 100 yuan was worth $65, in 14 years (1994), it fetched $11.5, thereby making cheaper export and expensive import for the Chinese. Import meant loss, export was profit. Nevertheless, the devalued Chinese currency remained remarkably stable for more than a decade, without fluctuating. Hadn’t it been so, the devalued (plus fluctuating) currency would have played a spoilsport in the retrieval of the balance of payment. ‘Currency confidence’ plays a major part in transactional world.

Soon, China exported more goods than it imported. In 1990, China achieved $8.74 billion trade surplus for the first time and its foreign exchange reserves shot up to $28.6 billion, “more than twice the level of the mid-1980s.” Thereafter, it was timely intervention of the State when required.

Thus, despite initial hiccup of the 2008 financial crisis, the CPC economy came out relatively unscathed, focusing on currency stability and interfacing material, manufacture, market and money in broad canvas; constantly searching for loopholes of rivals, competitors and adversaries to establish its dominating presence. Shouldn’t India try to come out of its macro morass?