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India-China Agri-Trade Relationship – Where are we heading?

Global trade uncertainty as COVID-19 pandemic upends the global economy can lead to painful consequences across all sectors. As per the World Trade Organisation (WTO), global trade is expected to fall by between 13% and 31% [1] in F21. The significant decline in economic growth due to the pandemic led into an issue of access to food, limiting people’s ability to get enough or nutritiously enough food, especially in countries already hit by hunger and other crises even before COVID-19. At the other end, restrictions in movement have hit the income of the farmers in the exporting nations.

India has consistently remained a net exporter of Agri-commodities, touching Rs. 2.7 lakh crores exports and imports at Rs. 1.37 lakh crores in F19. During the restrictions imposed due to COVID-19 crisis, several measures were taken by the government to support farm production and movement of agri commodities. However, the disruptions to transport and labour availability impacted movement, thereby causing disruptions in agricultural trade. Global supply chains were interrupted after the covid-19 outbreak, hurting India’s exporters. During the Jan-Mar period in F21, India’s export to the world decreased by 12% year-on-year.

Agricultural trade in India is not just impacted by the COVID-19 crisis, but several other factors added fuel to the fire. One of these being the growing tensions in the Indo-China border.  The outrage over the killing of Indian soldiers has led to calls for banning trade with China. After 1975, this is the first violent incident on the India-China border in which casualties have taken place[2]. This has led to another layer of uncertainty to countries already reeling from the coronavirus pandemic on both sides of the border.

In the last several years, China has emerged as India’s one of the major trading partners of agri commodities. In FY19, India’s exports of agricultural goods to China were 4.7% of global export while import from China accounted for 2.5% of global import. Some of the major agricultural exports from India to China were raw cotton, other shrimp & prawn, castor oil, Capsicum Pimenta etc. Major agricultural imports of India from China were animal feeding, kidney beans, bamboos, wheat gluten, etc.[3]  Evident from the table below, India’s agricultural exports and imports[4] to/from China plunged year-on-year during the three-month period this year, i.e., March to May. However, irrespective of the huge anti-China sentiments in India, to boycott Chinese goods, agricultural exports to China is hit hard as compared to imports from China.agri-india-trade-marketexpress-in

Import of agri commodities from China during the period marginally decreased by 0.2% year-on-year while export of agri commodities to China decreased by 15% year-on-year. One of the key factors that dented India- China trading relationship much before the COVID-19 crisis, was India’s withdrawal from Regional Comprehensive Economic Partnership (RCEP) at a summit in Bangkok in 2019. RCEP is a proposed trade pact involving 16 countries in the Asia-Pacific region. The members were 10-nation bloc ASEAN, India, China, Japan, South Korea, Australia and New Zealand. Domestic industry and dairy farmers had strong reservations about the trade pact. India’s several concerns remain unaddressed and various issues are unresolved so far in the proposed deal under negotiation. India’s trade deficit with the RCEP nations is USD 105 billion, of which China alone accounts for USD 54 billion. Participation in the pact would have resulted in increasing imports from China.

A recent study carried out by the United Nations Conference on Trade and Development (UNCTAD) suggests that the global export of commodities to China could plunge 46% in 2020 if compared with annual growth projections before the coronavirus pandemic hit. Most of these fluctuations are expected to be in primary commodities, which constitutes the bulk of India’s export to China.

COVID-19 crisis has undoubtedly posed a serious concern on the earnings of the agri exporting nations and food security of the importing nations. However, in India the problem is multi-fold with China being one of the top 10 trading partners of agri commodities. India- China trading stiffness started with India withdrawing from the RCEP agreement.  The COVID-19 crisis added to the tension and further aggravated with the Indo-China border casualties.  Many in India are quick to note that weaning away from China economically is easier said than done. The economic interdependence of India and China is too deep to be ignored. Specializing and trading is the key to economic growth of any country. Moving away from trade will only undermine efficiency and come at the cost of consumers’ benefits.

 

 

Source:
1- WTO
2- Business world
3- agricoop.gov.in
4- Trade Data for the month of May & June 2020 is not available

The opinions expressed in this article are the author’s own and do not reflect the view of MarketExpress – India’s first Global Analysis & Sharing Platform or the organization(s) that the author represents in his personal capacity.