India’s exports to China jumped by 28% in FY 21; raw commodities form the bulk

China emerged as India’s second-largest exports destination in FY21, despite the anti-Beijing rhetoric, as the share of raw inputs or commodities in China’s imports from India rose at a brisk pace last fiscal, the Indian commerce ministry said.

India’s shipments to China jumped an impressive 28% last fiscal from a year before to $21 billion, even when overall merchandise exports shrank 7%. As much as 81% of the supplies to Beijing, worth $17 billion, were just raw materials and intermediate goods, up from 74% five years ago (FY17), government data revealed.

Raw materials, mainly iron ore, cotton and plastics, and intermediate goods such as low-grade iron & steel, chemicals and copper were shipped to China in large volumes last fiscal. However, exports of  value-additive consumer goods or capital equipment from India were next to nothing. In fact, China dominates the global export market in these segments, and remains way ahead of India.

China has also been stubbornly denying credible market access in goods segments where Indian producers are competitive. Relying on just commodities and intermediate goods is unlikely to push up India’s exports to China year after year. Growth in exports of raw materials and intermediate goods greatly hinges on global commodity prices and it tends to lose steam as the prices go down.

While China has been vacating export space in labour-intensive sectors due to rising wage costs, India has failed to capitalise on it, losing out to competitors like Vietnam. According to former chief economic advisor Arvind Subramanian, China has vacated close to $150 billion in exports in low-skilled labour-intensive sectors, including apparel, leather and footwear since the global financial crisis in 2008-09.

India has been able to capture only 10-15% of this opportunity. India has also not been able to quite cash in on a trade war between the US and China, partly due to the outbreak of the Covid-19 pandemic.

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