India-China Trade: India Faces A Whack-A-Mole With Electronic Imports From China

India finds itself facing a whack-a-mole challenge with electronic imports from China, with personal computers becoming the latest item pushing up inbound shipments from the neighbouring nation.India's trade deficit with China hit a record high of $6.8 billion in October, easing only marginally to $6.5 billion in November, based on the latest available data of country-wise trade. India's overall trade deficit also hit a record high of $23 billion in November, led by imports of oil and gold. It has since eased to just under $18 billion. While exports to China have grown at a faster pace, rising 36% to $15.6 billion in the April-November 2021 period, compared to the pre-pandemic year of 2019, imports remain larger in value. These have risen 26% to $59 billion, leaving the trade deficit at close to the highest levels on record.Personal computers are now the largest single item of import from China. India imported personal computers, including laptops, worth $3.6 billion in the current fiscal between April-November 2021, 63.7% higher than the same period last year. The quantum of imports of personal computers from China in the first eight months of 2021-22 has nearly doubled compared to the same period in 2019.Alongside personal computers, imports of monolithic integrated circuits, used in electronic goods, have surged to $2.6 billion, a 73% jump compared to the pre-pandemic year.Parts of phones remain the second highest imports from China. At over $2.6 billion, imports in this category has risen 7.7% over 2019. Assembled mobile phone imports, however, have contracted 8.4% over the same period..Overall, imports of electrical machinery and equipment continue to remain the largest imports from China at $17.8 billion between April-November 2021, 26.6% higher than in the same period in 2019..Imports of computers and laptops saw a surge through the pandemic because of a sharp rise in domestic demand led by work-from-home and virtual education, said S Prahalathan Iyer, chief general manager at the Export-Import Bank of India. Phones and phone parts used to be the largest imports from China, but government policies have meant that a substantial part of the assembling is done locally, Iyer said. Several companies are assembling laptops locally too, while importing the components from China, he added. "While phone parts remain a large import item, India has seen a tremendous surge in exports of phones to other countries as well," he said. In April 2020, the government had notified a scheme introducing production-linked incentives for electronics manufacturing.Imports of ready phones might have come down but that’s accompanied with imports of more parts, said Manoj Pant, vice chancellor at the Indian Institute of Foreign Trade. "Even so, a strategy that encourages assemblage domestically is effective as it helps generate jobs along with helping the economy move up the value chain," he said. Other large import items, such as solar cells and power equipment, cannot be curbed without a sharp rise in costs in India, Pant said. Production linked incentive schemes, along with the government's five-year road map and vision document for electronic manufacturing, is expected to give further impetus to manufacturing of electronics in India, Iyer added. While the roadmap lays out an ambitious product-wise target for electronics, even reaching half the target would mean a substantial decline in imports accompanied with a rise in exports, he added. New entrant: Assembled Solar Cells Alongside electronic goods, assembled solar cells are now the fourth largest import from China. India imported solar cells assembled in modules or made up into panels worth $1.3 billion in April-November 2021. Previously, India was mostly importing unassembled solar cells. In the current fiscal, it imported unassembled solar cells worth $520 million.India's ambitious solar energy programme has meant a high reliance on imports as domestic manufacturing capacity remains limited, Iyer said. Existing domestic capacity contributes to barely about a tenth of the demand, Iyer said, adding that production linked incentives could help in the medium term. .Fundamentals driving the wide deficit in trade between India and China remain unchanged. Structural challenges remain the same as they have been for years, said Madhavi Arora, chief economist at Emkay. "Despite a rise in labour costs, China continues to steal a march because of its high labour productivity and low turnaround time," Arora said. Critically, the nature of India's foreign trade compared to China's remains starkly different, she added. China imports raw materials and exports finished goods, while India's exports are lower down the value chain.The currency exchange rate, which can play a role in pushing exports, has been favourable for India in the last couple of years. The Indian rupee has weakened to 11.7 to the Chinese yuan, compared to a level of close to 10 in the first half of 2019.The weaker Indian rupee can have an impact on some industries but not on all. The impact of a weaker currency would have been more substantial if merchandise trade was concentrated on raw materials, rather than on semi-finished or finished goods, said Anindya Banerjee, vice president for currency and interest rate derivatives at Kotak Securities.For now, India's imports from China are rising at a faster clip compared to India's broader imports. Overall, merchandise imports rose by 18.4% between April-November 2021, compared to April-November 2019. Non-oil, non-gold imports rose by 13.5% to $227.96 billion over the same duration. However, imports from China, which fall mostly in the non-oil and non-gold category, rose 26%..The dependence of the Indian economy on Chinese imports remains high with direct contribution to over 30% of India’s aggregate trade deficit, said Pradeep Multani, president of the PHD Chamber of Commerce and Industry. To correct this, local production capacities with more and more deployment of labour, capital and technology should continue to remain in focus along with an emphasis on labour intensive sectors, he said.

India-China Trade: India Faces A Whack-A-Mole With Electronic Imports From China

Move over phones, laptops are now the largest imports from China.

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