When Mr. Narendra Modi was reelected to power this year, his aim became to make India a 5 trillion$ dollar economy. A country with a billion people in itself is a challenge to the government in establishing a fair trade system. India and China are two leading bulls in the field of economies around the world. India is the 7th largest economy in the world with a GDP of 2.7 trillion$ and China with a GDP of 13.41 trillion$. However, India’s trade with China can be called more of a one-sided than a symbiotic relationship.
The trade deficit of India with respect to China climbed to 57.86 billion$ from 51.72 billion$ in the year 2018. As per a report by The Mint in July 2019, India- China trade declined by 3.59% in the first five months of this year. However, the issue of fair bilateral trade has been taken up by several finance ministers in the past including Mrs. Nirmala Sitharaman. Issues like the Indian IT Sector where the companies have made established presence but operations are lagging behind due to lack of permissions by Chinese authorities. Similarly, Indian banks trying to help Indian exporters are not given enough operational freedom. There are many reasons which create a huge trade deficit between the two countries such as the protectionist approach of Indian lawmakers towards China. However, Informal and formal summits between the two countries have again hit a new spark of optimism in the trade of the two countries. But the fundamental issue of maintaining a balance between the two countries still remains a challenge between the two nations.
India’s recent exit from RCEP (Regional Comprehensive Economic Partnership) also poses a significant amount of questions to the incumbent government’s trade turf. When Prime Minister Modi announced the exit from RCEP, this move was highly appreciated by some of the conglomerates like AMUL while liberals and oppositions also question the credibility of this decision stating that this decision will bring the third jolt to the economy after Demonetization and GST.
India’s concerns are the RCEP would force India to cut down duties on 90 percent of goods imported. This would result in flooding of a lot of cheap goods from other countries especially China. This ultimately would not be an invested interest of Indian domestic players. Apart from this India’s trade deficit also doubled to 105billion$ from 54billion$ from these countries and a report published from NITI AAYOG also mentioned that India had not much to gain from these free trade agreements in the past.
With these many issues facing and the global economic slowdown, it is a challenging job for the Modi Government to maintain its fair trade with other countries. The fundamental question of India becoming a 5tillion$ economy before 2024 still exits and it would be challenging to see how the government’s policies bring down the trade deficit with other countries.
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