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China's investment plans in India cross $26 billion: Will breaking ties hurt India Inc.?

BusinessToday.In     June 17, 2020

In light of the recent clash between India and China, the trade relations between the two Asian giants are poised for a rough ride. There have been calls for boycott of Chinese goods by various groups in India. Social media too is abuzz with similar appeals.

However, the reality is different, at least going by India's trade relations with China, its largest trading partner. With China accounting for more than 10 per cent of our trade, India will find it difficult to disengage with China. India imports about 14 per cent goods and services from China as compared to 5.3 per cent exports to it, which happens to be one of the world's biggest trade deficits between two nations, as per latest data released by the Ministry of Commerce.

As per Brookings India report, the total amount of current and planned Chinese investment in India has crossed $26 billion (around Rs 1,98,000 crore). China-based companies are also stepping up their investment in Indian companies, including startups, the report said.

The numbers clearly show India's heavily reliance on Chinese imports and any disruption of trade ties between the two countries will substantially hurt Indian businesses.

Also Read: Infographic: Can we boycott China?

However, India's trade dynamics with China have changed after the coronavirus pandemic. The trade deficit, difference between exports and imports, between the two countries stood at just $1.816 billion in March 2020, which was the lowest level ever in a month since December 2010 when the deficit was $183.7 million. For the financial year 2019-20, bilateral trade with mainland China declined for the second consecutive year by 6 per cent to $81.86 billion. This was the first time ever that trade with Mainland China declined for the second consecutive year. In the previous year, it had declined by 2 per cent. The rate of contraction in bilateral trade in FY20 was the steepest since 2012-13 when it had declined by 10.5 per cent.

Decline in bilateral trade with China also resulted in a narrowing of the trade deficit between the two. It is now below $50 billion mark for the first time in 5 years at $48.66 billion. Mainland China was India's largest trading partner between fiscals 2014 and 2018 but became number two in 2018-19 when US overtook it.

Also Read: Troubled times ahead for Indian exports to China

Meanwhile, India's trade with mainland China and Hong Kong declined by over 7 per cent to $109.76 billion in FY20, its steepest fall since FY13. It is a sharp reversal from the 3.2 per cent growth in trade in 2018-19 and the more robust 22 per cent jump in FY18, signalling the prevailing anti-China sentiment in the country. A lot of business with Mainland China is also conducted via Hong Kong.

On April 17, India announced changes to the FDI policy followed by notification on April 22 to prevent opportunistic takeovers or acquisitions of Indian companies due to the current COVID-19 pandemic. The restriction was specific to countries that share land borders with India and hence primarily targeting China.

By Chitranjan Kumar

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