Trade Beyond Borders: Decoding India-China Economic Relations

Abstract

India and China are prominent players in the rapidly growing economies of Asia. With a shared border spanning 3488 kilometers, the two nations have historically grappled with border disputes, leading to periodic violent clashes between their respective military forces. These skirmishes often evoke strong sentiments among the Indian populace, resulting in intensified boycotts of Chinese goods as a form of protest and economic reprisal. This paper aims to critically examine the trade relations between India and China, particularly in the context of trade restrictions on products originating from China, within the framework of their membership in the World Trade Organization (WTO). Drawing on data sourced from the United Nations Conference on Trade and Development (UNCTAD), trade indices such as the Export Share Index, Import Share Index, Import Category Index, and Origin Specific Import Category Index are calculated to shed light on the bilateral trade dynamics, mutual economic interdependence, and trade balance from the perspective of India. Analysis reveals a significant trade deficit for India vis-à-vis China, which has surged at an annual rate of 23.46 percent between 1995 and 2022. India's reliance on China extends beyond manufactured goods to encompass essential raw materials, particularly in sectors such as pharmaceuticals. Notably, China serves as the primary source for 23 out of 260 items and a major contributor to over 38 additional items in India's import portfolio. Rather than resorting to a trade war with China, which could yield adverse effects for both nations, it is suggested that India focus on bolstering infrastructure development, fostering a conducive business environment, improving ease of doing business, and investing in healthcare and education sectors. Such measures aim to stimulate industrial growth, harness skilled labor resources, and enhance employment opportunities for the populace at large.