Imports From China Rebound In July Amid Increased Scrutiny

Imports from China into India rebounded faster than overall shipments into the country in July, shows the fine print of trade data available until the month of July.

The pick-up took the value of inbound shipments back to pre-Covid levels, the data shows. This, just as India announced one-off measures to restrict and monitor inbound imports from the neighboring nation amid military skirmishes.

Merchandise imports from China contracted by 9.8% in July, compared to a contraction of 43.7% in June, according to data released by the Department of Commerce. The rebound was sharper than what was seen across India's aggregate imports, which contracted by 29.6% in July, after a drop of 48.5% the previous month. Imports from the United States and UAE, the second and third largest importers to India after China, contracted by about 30% in July, the data showed.

In value terms, imports from China rose to $5.58 billion in July, compared to $3.3 billion in June. The was the highest since January 2020 and Chinese imports accounted for nearly a fifth of India's total merchandise imports.

Exports to China, however fell marginally in July to $1.74 billion from $2.1 billion in the previous month. Consequently, India's trade deficit with China widened to $3.8 billion, the highest since January 2020.

With China's return to normalcy, foreign trade with China has recovered quicker than trade with other economies, hence reverting to previous trends, said Manoj Pant, director of the Indian Institute of Foreign Trade. Pant added that the trade policies changes announced in the aftermath of military tensions may not necessarily hurt merchandise imports from China. Instead, they are intended to function as a signalling mechanism, indicating that it may not longer be business as usual between the trade partners.

The measures are also intended to further build-up domestic capacity and draw in foreign direct investment.

Dharmakirti Joshi, chief economist at CRISIL, said that the change in some trade policies, along with the pandemic, have led to volatility in trade data.

An analysis of trade between China and India has thrown up confusing results. For instance, while there was a decline in India's trade deficit with China until June, when trade via Hong Kong was included, this result was a little less conclusive. There were also one-offs in the midst of the pandemic. For instance, China was importing steel from India, which was seen as an unusual move and was not expected to sustain.

However, over a longer period, there has been a trend of a narrowing trade deficit with China and this is likely to continue said Joshi. That said, by imposing more tariffs, India could end up with imports of more costly or less efficient items, said Joshi, adding that, a strategic change to produce more domestically will help lower the deficit going forward.