India's Trade Relations with China in the Era of Globalization

Abstract

In this study, an effort has been made to analyze the trade relations between India and China since 1995 using the concepts of trade intensity, revealed comparative advantage, trade reciprocity index, long-term trend analyses and statistical test. Time horizon is taken during 1995 to 2008. Our results show that the liberalization process has led to significant increase in Volume of Indio-China trade resulting in trade growth between the two countries higher than the world trade growth. India's trade growth lagged behind China during 1997-2002, but since 2002, its trade growth rate improved substantially and became even higher than China. India's exports to China increased rapidly since 1995 because of this China became the second largest destination for India's exports. This analysis also shows great potential of trade in manufactures, chemicals and agricultural products. The composition of India's commodity basket shows that India mainly focuses on exports of primary product and imports manufactured goods, which is not beneficial for India in long term. Balance of trade is not favourable for India and there is need to take immediate steps for improving India's exports to China specially by focusing on exports of manufactured goods for which good potential exists.