How to Plug in India-China Trade Deficit
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How to Plug in India-China Trade Deficit

India has huge trade deficit with China and that is largest with any country. In 2015-16, India's exports to China were mere USD 9 billion, while imports were USD 61.7 billion, leaving a trade deficit of USD 52.7 billion.

In the last four years, trade between the two nations has failed to match its peak of $79 billion in 2011, and now the decline is almost free fall.

In order to plug in the widening trade deficit, India has recently started negotiations for greater market access for its goods and services with China.

India’s Commerce and Industry Minister Nirmala Sitharaman in a statement has said that she has flagged several issues of bilateral trade with China's Ambassador designate in India.

One of them is of early permission of the accesses of its IT and pharmaceuticals products into Chinese market. There are several Indian IT companies that have established business in China but their operations are lagging behind schedule because of the lack of permissions by the Chinese authorities and their insistence of inspections being done over and over again is delaying the trade relations.

Apart from IT, there is huge scope for India’s pharmaceuticals products in China. A Chinese delegation recently had come to visit phytosanitary lab in India but no clearances to it has been given so far.

Since Indian companies do not get market access to China, much such trade is now being routed via Vietnam. This is one of the many reasons of low trade figures between India and China.

Besides, Indian banks which are operating in China and are trying to help Indian exporters but they are not given operational freedom in China.

There are many such issues that are bottlenecks for growing trade deficit with China Sitharaman has said, adding that India is holding talks with Chinese to overcome such impediments and to increase its goods market access into China.

In comparison to 9 billion India- China trade, China's trade with the United States is about $627 billion. Even Singapore, which has a population about 240 times smaller than India, has a trade of 18 billion with China each year.

There are many reasons for the widening India-China trade deficit. The main barrier between India and China trade relations is India's own roads, ports and railways.

The mainland trading point between India and China is the Nathula Pass. This was reopened in 2006 nearly 44 years after 1962 war for improving trade relationship between the two countries. However, even after a decade has passed, the trading point do not account for even one per cent of overall bilateral trade with China.

The problem is of poor road which is narrow and littered with potholes. There are no warehouses to store goods and there are no hotels to stay. Moreover, there are only 56 low-end items that can be traded through this pass, and they include items like tea, bicycles and canned food etc. All these hardly have any market in China. Besides for about half the year, heavy snowfall forces the closer of the border outpost.

Same can be said about the sea routes that account for the bulk of trade between India and China. There is lack of quality roads around ports, insufficient warehouses, high tariffs and visa restrictions, all contribute to the lopsided and lacklustre trade relationship between the two countries.

In 2014 it cost $1,332 on average to export a container from India, compared with $823 to ship from China.

Another reason of low trade is, India wants moderate import tariff on goods rather than complete elimination of duties, while China is pushing to increase number of products that will attract zero duty.

The main reason for abysmal trade relation with India and China is a lack of trust between the two countries. India’s lawmakers are urging to take protectionist measures against China and because of this it's not convenient to do business between the two countries. The trust deficit is telling upon the trade deficit.

Even some say, the trust deficit between India and China is fragile and superficial, the fact remains that it is the main reason for any improvement in trade relations with China.

The only way to turn this around is through protracted negotiations on trade relations between India and China. In these negotiations both sides have to tap their trade potential. One way to improve trade deficit could be to get China's manufacturers to start making goods in India. So far, Chinese foreign direct investment into India has been miniscule: $1.36 billion over the past 16 years.

India’s Prime Minister Narendra Modi has done several rounds of talks with his Chinese counterpart and that has said to ease the trust deficit. A climate of goodwill is created to improve the trade relationship between the countries. India has added China in its list of 43 countries for Visa-On-Arrival in India. This has given a fillip to its ‘Make in India’ vision and trade relations between India and China is bound to improve. It is being said, if this environment continues, the prospects of improving India China trade deficit remains high.