Why does India trade with China?

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Why does India trade with China?

Wednesday, 20 September 2023 | Utkarsh Chauhan

Why does India trade with China?

India gains from Chinese imports as it allows for value addition in the country and helps create jobs

It is often asked why despite India’s enmity against China, is there still a $136 billion business between them. It is a fact that India shares quite unpalatable & hostile terms with China as it’s one of the closest neighbours in Asia. But despite several border issues & dicey security threats to India flowing from China, the last year’s (2022) bilateral trade between them was of $136 billion. And just because of these high-yielding business figures, people tend to fall in ambiguity about India-China bilateral relations which are still financially affluent despite border disputes & China was being marked as Covid’s epi centre by India.

So, the story is, actually India wants to subvert China’s economic, diplomatic & geopolitical power and presence across the globe but India’s economic stance & stature are not very competitive to send China out of the doors. Even in the contemporary era, no nation can afford to attack its enemy straightaway because the world has already witnessed a situation of stalemate between Russia & Ukraine where not a single solution has come out.

The reason why India still opens its gates customs department to let Chinese products come inside is that, first of all, whatever products China exports to India are tangible items, not services. So, India has a hidden & special foreign trade policy to tackle China’s abundance of exports to India, out of all those tangible products imported that India makes from China, a substantial part of it is of those goods that India imports in the form of raw material for shaping & polishing them further into finished goods. For example, the mics that news readers use are majorly manufactured inside China yet India imports them Even though the metal stick used in eyeglasses is also from China, it is still being imported by companies like Lenskart to procure just the raw material at a cheap cost from China & further convert that metal stick into stylish eyewear having more final value than its raw material’s cost.

Another question the public raises is whose economy is dicer for India, the USA or China? So, it has already been propounded about the reason for India still being a bilateral trading partner with China. But Indians have less discourse about the nasty effects of the USA’s economy on India. India in its bilateral trading ties with the USA is an importer because of the current account deficit. The sorts of goods & services India imports from the USA are unlike of China’s which anyhow lead to some value addition in India. Brands like McDonald’s & KFC have their genesis in the USA & India buys eatables from such multi-national food chains, but the crux is, that India cannot add any further value addition in a burger or a chicken bucket for selling it to some other party just like the case of China, where India remains with a scope of doing 3 times valuation addition in a product imported as a raw material from China.

So, India has been more at the loss side in trading bilaterally with the USA in comparison to China because products India imports from the USA are directly consumed by the final customer, it may be a US Polo shirt, KFC’s chicken, McDonald’s burger, etc. Thus, there is no value addition in India. In questing about the ideology of India’s foreign trade policy, it was found that India restricts itself to importing completely manufactured products from others, it always nods to those products only having a scope of more value addition even when they are imported into India. It is so in the policy because it results in employment & income for Indians while they further process those unfinished products that were imported earlier.

(The writer is an expert on international business issues and has been featured in the International Business Times. Views are personal)

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