US and China account for a fifth of India's merchandise trade

20 Jun 2022 , 10:26 AM

In the fiscal year 2021-22, India’s merchandise exports increased by 44.6 % while imports increased by 55.3 %. For the first time, the entire amount of merchandise commerce surpassed $1 trillion, with exports reaching $422 billion and imports reaching $613 billion. Despite several problems such as disrupted supply chains, a scarcity of containers, and delays at ports, trade rose.

The increase in trade contributed to a worsening of India’s trade balance, with imports exceeding exports. The trade imbalance increased, just edging over the 2012-13 peak. A rise in petroleum crude and gold import bills contributed to a worsening of the trade balance in that year. A strong jump in commodity prices drove growth in exports and imports in FY 2022, as demand soared after economies emerged from months of lockdown.

India exports to 240 countries and jurisdictions and purchases from 229 countries and jurisdictions. However, the most substantial trade flows are with the United States and China.

In 2021-22, the US and China accounted for over a quarter of India’s foreign commerce trade. The United States reclaimed the top spot from China the previous year, but the difference was just approximately $4 billion. Despite certain anti-China sentiments, India’s exports to the US and imports from there increased by around 50% year on year, while imports from China increased by approximately 45 %. Exports to China were unchanged.

Among the top trading partners, bilateral goods commerce with Australia grew the fastest, with both exports and imports doubling over the course of the year. Despite this, Australia represents only 2.4 % of the total value of commodities exchanged between the two nations.

Due to the high price of crude petroleum, India’s imports from oil-producing countries increased dramatically. Saudi Arabia, Kuwait, Oman, and Iraq increased their imports by more than double, while the United Arab Emirates and Qatar increased theirs by almost 70%.

The trade imbalance has increased

In 2021-22, India’s trade deficit increased by 85.8% to $190 billion. China had the greatest trade imbalance, estimated at $72.9 billion. That was the equivalent of 40% of the year’s trade deficit. Electronic components, computer hardware, telecom instruments (mainly mobile phones), organic and other chemicals, and machinery are among the items India imports from China.

Six oil-exporting countries–Iraq, Saudi Arabia, the United Arab Emirates, Qatar, Kuwait, and Oman–accounted for half of the entire shortfall.

Is the growing trade imbalance a cause for concern?

Given the substantial growth in the merchandise trade deficit, India’s current account deficit is likely to reach a three-year high of more than $40 billion in 2021-22. In the previous year, India posted a current account surplus as the value of imports declined, aided in part by lower crude oil prices. One of the most important components of the current account balance is the merchandise trade deficit. Net earnings from trade in services, net income on investments, and net workers’ remittances are among the other components.

It will balance some of the merchandise trade deficit as long as gains from trade in services and workers’ remittances remain strong. However, rising crude oil and other commodity prices might increase the trade gap even further, putting more pressure on the rupee to weaken.