China returns as India's top trade partner despite tense relations

Two-way trade between the longstanding economic and strategic rivals stood at US$77.7 billion (S$102.6 billion) last year, according to provisional data from India's Commerce Ministry.
Two-way trade between the longstanding economic and strategic rivals stood at US$77.7 billion (S$102.6 billion) last year, according to provisional data from India's Commerce Ministry.PHOTO: REUTERS

MUMBAI • China regained its position as India's top trade partner last year, as New Delhi's reliance on imported machines outweighed its efforts to curb commerce with Beijing after a bloody border conflict.

Two-way trade between the longstanding economic and strategic rivals stood at US$77.7 billion (S$102.6 billion) last year, according to provisional data from India's Commerce Ministry.

Although that was lower than 2019's US$85.5 billion total, it was enough to make China the largest commercial partner of India, displacing the United States - bilateral trade with whom came in at US$75.9 billion amid muted demand for goods in the middle of a pandemic.

While Indian Prime Minister Narendra Modi banned hundreds of Chinese apps, slowed approvals for investments from China and called for self-reliance after a deadly clash along their disputed Himalayan border, India continues to rely heavily on Chinese-made heavy machinery, telecom equipment and home appliances.

As a result, the trade gap with China was at almost US$40 billion last year, making it India's largest.

Total imports from China, at US$58.7 billion, were more than India's combined purchases from the US and the United Arab Emirates, which are its second-and third-largest trade partners, respectively.

That said, India did manage to lower imports from China amid demand disruptions caused by the coronavirus pandemic.

The South Asian nation also managed to increase its exports to China by about 11 per cent from a year ago to US$19 billion last year, which makes any further worsening of ties with Beijing a threat to New Delhi's export revenue. The tense relations are already weighing on India's ambitions to bolster its manufacturing capabilities.

India has been slow to issue visas to Chinese engineers needed to help Taiwanese firms set up factories under a so-called production-linked incentive (PLI) programme to promote local manufacturing.

"Still a long way to go" is how National University of Singapore economist Amitendu Palit, who specialises in international trade and investment, described New Delhi's efforts to wean itself off Beijing.

He said: "The PLI schemes will take at least four to five years to create fresh capacities in specific sectors. Till then, reliance on China will continue."

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A version of this article appeared in the print edition of The Straits Times on February 24, 2021, with the headline 'China returns as India's top trade partner despite tense relations'. Subscribe