India's Finance Minister Nirmala Sitharaman has offered a nuanced perspective on the nation's trade deficit with China, asserting that official figures may not reflect the full picture. Speaking at the Pondy Lit Fest, Sitharaman highlighted that a significant portion of Indian exports destined for China are not directly accounted for, thereby distorting the trade balance.
The Hidden Export Routes
According to Sitharaman, a primary reason for the skewed trade deficit is China's denial of market access for certain Indian goods. This forces Indian products to reach the Chinese market indirectly, often via intermediary countries like Vietnam. Consequently, these exports are recorded as going to Vietnam, not China, in India's official trade books.
"Our export account would say that we are still not adequately exporting to China. Actually, it is going to China, but it never gets accounted like that because it goes to Vietnam, and from Vietnam it sort of crosses the road and goes to China," Sitharaman explained.
The Finance Minister cited examples such as buffalo meat and generic pharmaceutical drugs, which are high-value bulk goods that China consumes from India but prefers to import indirectly. India has consistently raised this issue since 2014, seeking direct market access for these and other products.
Shifting Import Landscape and Domestic Capacity
Sitharaman also addressed the nature of India's imports from China, noting a significant shift. Previously, dependence on China extended to various consumer goods. However, current imports are increasingly focused on critical components and high-technology items essential for India's nascent industries.
For instance, she pointed to the solar manufacturing sector, where India relies on Chinese imports for components while simultaneously working to establish domestic production capabilities. "The kind of imports happening now from China are of an absolutely critical nature... in solar, we are trying to become self-reliant on many components," she stated, emphasizing that these imports fill gaps where India's own production is currently limited or non-existent.
India's Strategic Response
In response to the ballooning trade deficit, the Indian government has consciously decided to foster domestic capacity in sensitive and frontier technologies. This strategy aims to reduce reliance on imports, particularly from a single country, and enhance self-reliance across various critical sectors.
Sitharaman assured that while India may currently import these items, there will be a complete shift towards creating robust domestic capacities for large, sensitive, and high-technology products within the country, diversifying its global supply chain.