On Monday, India officials said that they would consider imposing import duties on Chinese goods to rein in the growing trade imbalance between the two countries. India’s Department of Industrial Policy and Promotion (DIPP) Secretary Amitabh Kant noted that India “will do this because [India] can not sustain this [trade deficit] for over a long period.” While India and China share a massive trade volume, the balance is heavily in China’s favor. Last year, New Delhi exported $15 billion worth of goods to China while importing $51 billion in return.
“This trade deficit [between India and China] is not sustainable in the long run and therefore it is very important to understand for Chinese companies that in the coming years, India will have to put some kind of safeguards,” Kant added.
The trade imbalance issue is important for the Indian government and featured prominently during Chinese President Xi Jinping’s recent September 2014 visit to India. Indian Prime Minister Narendra Modi noted that he “raised the issue of [the] trade imbalance between the two countries.” He added that he “urged President Xi to give our companies better market access and investment opportunities in China.” Although that visit did not result in any immediate measures to help balance India-China trade, Xi assured Modi that he would take “concrete steps” to help reduce India’s deficit.
The Indian government has additionally invited Chinese firms to begin manufacturing goods in India. “Chinese companies should actually manufacture the same goods [that they export to India] in India. We welcome Chinese companies. You please invest and manufacture in India. We will welcome telecom equipment, power equipment but kindly manufacture in India,” Kant said.
Beyond the current rate of growth of the trade deficit, Indian officials remain concerned that matters could worsen as China begins dumping cheaply manufactured goods in the Indian market at prices below market rates to push out domestic competitors (with plans to eventually raise prices again). In a similar case, the United States Department of Commerce placed import duties on Chinese solar products, drawing Beijing’s ire.
Should India move to place tariffs on Chinese goods, the issue could drive a wedge between China and India. Beijing would likely perceive the decision as protectionism and condemn India for stifling the competitiveness of Chinese firms.