Model Answer
0 min readIntroduction
India’s trade policy has undergone a significant transformation since independence, evolving from a protectionist, inward-looking approach to a more liberalized and globally integrated one. Initially focused on self-reliance, India initiated economic reforms in 1991, dismantling trade barriers and opening up the economy. Today, India actively pursues free trade agreements (FTAs) and preferential trade arrangements (PTAs) with various countries and regions, aiming to boost exports and attract foreign investment. However, the trade relationship with China remains a significant point of concern due to a persistent trade deficit. Understanding the nuances of India’s trade policy and the dynamics of its trade with China is vital for comprehending India’s economic trajectory.
Salient Features of India’s Trade Policy
India’s trade policy is characterized by a blend of liberalization, diversification, and strategic partnerships. Key features include:
- Liberalization & Tariff Reduction: Post-1991 reforms led to a gradual reduction in tariffs and removal of quantitative restrictions on imports. India is a member of the World Trade Organization (WTO) and adheres to its principles of non-discrimination and market access.
- Export Promotion: The government actively promotes exports through various schemes like the Duty Entitlement Passbook Scheme (DEPB), Focus Product Scheme, and Market Access Initiative (MAI). The current scheme is the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme (2020).
- Free Trade Agreements (FTAs) & Preferential Trade Agreements (PTAs): India is actively negotiating and implementing FTAs/PTAs with various countries and regions, including ASEAN, Japan, South Korea, and the European Union. These agreements aim to reduce trade barriers and enhance market access.
- Trade Infrastructure Development: Investments in ports, roads, railways, and logistics infrastructure are crucial for facilitating trade. The Sagarmala and Bharatmala projects are key initiatives in this regard.
- Focus on Services Sector: Recognizing the importance of the services sector, India actively promotes its exports in areas like IT, ITES, and financial services.
- Digital Trade: Increasing emphasis on promoting digital trade and e-commerce, including cross-border data flows and digital infrastructure. The National Logistics Policy (2022) aims to improve efficiency and reduce costs in the logistics sector, facilitating both domestic and international trade.
Status of India’s Balance of Trade with China
India consistently maintains a significant trade deficit with China. This deficit has been widening over the years, despite efforts to address it.
- Trade Deficit: In FY23, the India-China trade deficit stood at approximately $88.36 billion (as per data from the Department of Commerce, Government of India – knowledge cutoff 2023). This represents a substantial portion of India’s overall trade deficit.
- Reasons for the Deficit:
- Import Dependence: India heavily relies on China for imports of intermediate goods, capital goods, and electronics. These imports are essential for India’s manufacturing sector.
- Cost Competitiveness: Chinese products are often cheaper due to economies of scale, lower labor costs, and government subsidies.
- Limited Diversification: India’s export basket to China is relatively limited, primarily consisting of raw materials and agricultural products.
- Non-Tariff Barriers: Indian exporters face non-tariff barriers in the Chinese market, such as stringent quality control measures and regulatory hurdles.
- Recent Trends: While the trade deficit remains large, there have been some attempts to address it. These include promoting domestic manufacturing through initiatives like ‘Make in India’ and imposing restrictions on imports of certain Chinese products, particularly in sectors like electronics and steel.
- Impact of Geopolitical Tensions: The border disputes and geopolitical tensions between India and China have also impacted trade relations, leading to increased scrutiny of Chinese investments and a push for supply chain diversification.
| Year | India’s Exports to China (USD Billion) | India’s Imports from China (USD Billion) | Trade Deficit (USD Billion) |
|---|---|---|---|
| 2018-19 | 10.01 | 63.94 | 53.93 |
| 2019-20 | 16.62 | 66.77 | 50.15 |
| 2020-21 | 20.89 | 66.77 | 45.88 |
| 2021-22 | 15.31 | 87.57 | 72.26 |
| 2022-23 | 15.95 | 105.91 | 88.36 |
Conclusion
India’s trade policy has evolved significantly, embracing liberalization and aiming for greater global integration. However, the substantial trade deficit with China remains a major challenge. Addressing this requires diversifying India’s export basket, promoting domestic manufacturing, reducing import dependence, and resolving non-tariff barriers. A balanced approach that combines strategic partnerships with a focus on self-reliance is crucial for ensuring sustainable and equitable trade relations, particularly with China, and fostering India’s economic growth.
Answer Length
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