Fixing trade imbalance: Import curbs on China likely as deficit grows
31 Oct, 2011, 06.44AM IST, Amiti SenAmiti Sen,ET Bureau
NEW DELHI: India's widening trade gap with China has triggered an alarm in the government, forcing it to brood over a host of measures to restrict imports from the country.
The commerce department has hammered out a "China Strategy" that calls for higher tariffs on most Chinese goods while proposing a complete ban on specific items, like power and telecom equipment. It also suggests making it mandatory for Chinese firms to enter into joint ventures with Indian companies before they could import heavy equipment and machinery from the country.
The move comes as India's trade deficit with China, its biggest trading partner, jumped 160% to $23.9 billion in the five years to 2010-11. Trade deficit is the gap between what is imported and exported and a rise in spread indicates India's increasing dependence on China.
"China has already taken over our power sector and is ruling the low-end market for mobile phone handsets," a senior official in the commerce department told ET on condition of anonymity. "If we do not step in now with suitable policy measures, our trade gap with China will rise further."
While imports of Chinese goods rose to $43.5 billion in 2010-11 from $17.5 billion in 2006-07, exports lagged far behind, up to just $19.6 billion from $8.3 billion over five years.
Indian officials say China acknowledges that trade imbalance is a problem, but it has done little to address it. The commerce department said Beijing has ignored seven specific requests from Delhi to ease imports of Indian goods that could have narrowed the trade gap significantly. These requests, made by Commerce and Industry Minister Anand Sharma during his Beijing visit last year and reiterated during Chinese Premier Wen Jiabao's New Delhi visit last December, included import relaxation for Indian pharmaceuticals, agricultural produce, IT products and heavy machinery.
"China promised us almost two years back that it would work towards helping us bridge the trade deficit, but has not yet taken any significant step," the official quoted earlier said.
China's lack of response forced the commerce department to plan measures aimed at restricting imports and boosting exports of value-added products, the official said, adding that the ministries of finance, power, telecom and home would be consulted once the strategy is ready.
The department also plans to encourage substitution of Chinese goods with those items from South Korea and Japan that face low tariff barriers.
Experts, however, say restricting Chinese imports will not be easy. "Even if we ignore the WTO rules and its ramifications, there is just too much peer pressure," said Biswajit Dhar, director general of RIS, a Delhi-based think tank for developing countries.
"In the G-20 forums, countries are constantly harping on ways to keep market open and such steps would be frowned upon." Besides, experts say, such measures could scare off foreign investors from India. "Restriction on Chinese investments could raise concerns that they could be extended to other countries as well," a trade analyst said. But Indian officials do not agree.
"We are aware of all existing rules and policies and there are ways around everything
," the official said. Reliance Communications, the telecom firm led by Anil Ambani, signed a deal in March to borrow $1.93 billion from China Development Bank. This included $1.33 billion for refinancing 3G spectrum fee payment and $600 million for equipment import from Chinese vendors. Check out Brand Equity's Most Trusted Brands List 2011
