How the govt plans to cover trade gap with China

The commerce and industry ministry is in a damage-control mode, looking for ways to narrow its soaring trade deficit with China.

According to some analysts, the deficit is expected to soar to $60 billion this financial year.

With costs of products rising in China, the government is leaving no stone unturned to grab the opportunity of entering the Chinese market in full force.

The ministry is sending exporters' delegations to China almost every month, which are aggressively pushing China to buy more value-added products from India, instead of merely importing raw materials.

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But, some experts believe it will not be easy to enter the Chinese market as yet and it will take a long time before India can bridge the wide gap.

The trade deficit with China increased to almost $40 billion in 2011-2012 from $23.1 billion in 2008-09 and $9.1 billion in 2006-07, according to data from the Ministry of Commerce and Industry.

Last year, the department of commerce had said it was preparing a strategy paper to cover the widening trade deficit with China, but nothing concrete has taken place so far.

However, according to ministry officials, the government is now looking at China more aggressively than earlier.

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"It is not possible to work out a strategy paper, as we import some of the big-ticket items from China. But, we want industry to take the lead now.

"The ministry is regularly organising more and more buyer-seller meets.

"We are seeing to it that a large number of marketing delegations visit China and understand the market there and identify where the gap is," a commerce department official told Business Standard.

According to the Federation of Indian Export Organisations, exporters were not able to penetrate that market, as the costs were less and Indian goods were not able to compete.

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But, on Sunday, the tables have turned.

Their goods have also turned expensive and global retailers now prefer India over China in some segments.

"China is an emerging market for us.

"We are now planning to penetrate into the market with more high-end products like auto components, pharmaceuticals, handicrafts and readymade garments.

"I believe we will be able to bridge the deficit in the next five years," M Rafeeque Ahmed, president, FIEO said.

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While Chinese exports to India mainly consists of manufactured items required for India's ever-expanding telecom, power and manufacturing industries, India exports raw materials and intermediary products.

Bilateral trade in 2011-12 was $75.5 billion, of which India's export to China was $17.9 billion and import was $57.6 billion.

India's main items of export to China include petroleum products, gems and jewellery, transport equipment, other raw materials and machinery.

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"China always has an advantage over us. It will take us a few more years to penetrate into the Chinese market. China has opened its market very selectively.

Neither our software industry nor the pharmaceutical firms have been able to market their products well in China," said Srikanth Kondapalli, chairman, Centre for East Asian Studies, Jawaharlal Nehru University.

India has also set up an India-China Joint Group on Economic Relations, Trade, Science and Technology in order to address the issue of widening trade deficit.

India's heavy industries significantly rely on raw materials and finished goods from China.

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The top five items of import from China are electrical machinery and equipment ($ 11.9 billion), mechanical machinery and appliances ($7.7 billion), project goods ($ 3.2 billion), organic chemicals ($3.85 billion) and iron and steel ($2 billion).

In the last couple of years, import of power and telecommunication equipment has seen a huge rise.

In 2010-11, import of mobile phones and other kinds of wireless phones reached $4.1 billion, up 60 per cent year-on-year from $2.5 billion in 2009-10.

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Similarly, import of project goods topped $3.2 billion in the last financial year from $2.1 billion in 2009-10, up 54 per cent.

"India is not unique in facing challenges of a widening trade deficit with China. Many other major economies are in a similar situation.

"This is what makes the prospect of enhancing India's exports to China more challenging, as other countries are also making efforts to penetrate the Chinese market.

"Further, the pattern of exports to any country cannot be changed within an extremely short time horizon," said Abhijit Das, head, Centre for WTO Studies, Indian Institute of Foreign Trade.