By Nantoo Banerjee
India’s fear for an uncertain outcome of the trade shock from the US looks rather out of sync with its pro-import economic policies. The country never aspired to become an export-oriented nation. Domestic manufacturing is heavily taxed. The government was never serious about export push and creation of export surplus. The country has been happily living with growing trade deficits year after year for nearly five decades.
India has been maintaining large trade deficits with China, Russia, Saudi Arabia, United Arab Emirates (UAE), and Indonesia, with China consistently being the largest of them all. The last time India showed an overall annual trade surplus was in 1976-77. In fact, it was for the second time that India ever earned an annual merchandise trade surplus with the first one being in 1972-73. The achievements in those two years in the international trade front failed to encourage the India government to push for export manufacturing and restrain imports.
The government has been blaming the rising petroleum import for its growing trade deficits. The claim is misleading, if not faulty, although the country is nearly 90 percent import dependent on crude oil. The cost of India’s petroleum imports last year was around $180 billion, accounting for only 25 percent of the country’s total import bill. However, the actual share of the petroleum import cost will narrow down to only 14 percent if one takes into consideration the country’s export of manufactured petroleum products.
In 2024-25, India’s total petroleum product export value was $84.2 billion, a 13.7 percent drop from the previous year’s level, despite a nine percent rise in export volume driven by products such as diesel, petrol, and aviation turbine fuel (ATF). According to the government’s own Press Information Bureau (PIB) release, the country’s total merchandise imports for the last fiscal year were US$ 720.24 billion as against US$ 678.21 billion in the previous fiscal. India’s total merchandise exports in FY 2024-25 were worth only US$ 437.42 billion, leaving a trade deficit of US$ 282.83 billion.
Behind the country’s growing annual trade deficit is the massive import of non-petroleum products, which could have been controlled by substantially raising domestic production and strictly curbing non-essential imports, especially of low technology items. The government rarely talks about the fast-growing import of such products while highlighting traditional import of petroleum. India’s non-petroleum import basket is fast expanding covering thousands of sundry items. Just to give an example, India imports even cheap thin cotton swabs to clean ears.
These little sticks are made in Vietnam and marketed by Japan. Such examples are galore despite the claims of successive governments since the Nehru era, all focusing on India’s so-called great indigenous manufacturing programme. Ironically, India boldly shares the company of some of the world’s highly developed countries (OECD) such as the US, Germany, the UK, Japan and France as the world’s seventh largest goods importer by value. China, the world’s largest exporter having the most impressively favourable trade balance, ranks second in the list.
Communist China, whose economy was smaller than that of India in the early 1950s, suffered from merchandise trade deficits only in the first few initial years. It had deficit trade with the world outside the Soviet Bloc during that period. However, the country was determined to change the overall situation in its favour in the post-Mao era by selectively adopting economic policies to create the world’s largest manufacturing base over the next 40 years. On the contrary, the ruling political parties in India relied more on sloganeering to make the country self-sufficient than truly making it happen. It relied more on promises than on performance. The economic policy changes and industrial reforms in China since the 1980s were focused strictly on performance. Those strong initiatives gradually made China the world’s top exporter, shifting focus from economic isolation to an export-oriented economy with strong state support.
Until the mid-1950s, roughly three-quarters of China’s total trade was with non-communist countries. The trade data for the decade showed China had an overall deficit of $82 million for the 1950-57 period. The data masked a changing pattern of trade with the surplus coming from the Soviet-led Communist world offsetting a growing deficit with the Free World. The pattern changed fast as China adapted a more pragmatic policy, focussing highly on infrastructure, industry and export growth to create millions of jobs at home, raise public income and domestic consumption, to support the export trade.
Ever since, the country has been consistently running a global trade surplus notwithstanding its rising imports. The world’s second largest merchandise importer, China is now the world’s largest exporter of goods. Last year, its trade surplus reached a record $992.2 billion, with exports earning $3.58 trillion and imports $2.59 trillion. Today, India ranks among China’s top 10 export destinations by value. India does not seem to bother about the massive growth of imports from China, substantially comprising non-essentials. China exercises severe import restrictions from India, for which the latter rarely grumbles.
Going by a World Trade Organisation report, last year, India ranked 17th globally for merchandise exports. The country’s merchandise exports represented only 1.80 percent of global exports. Until now, India’s single largest export destination has been the US. With the US imposed 50 percent import tariff on a host of items from India with effect from August 27, the government has suddenly woken up to appreciate the need for providing support for domestic exporters. The Indian commerce ministry has reportedly sent a proposal to the finance ministry to consider a large mid-term export support under the government’s Export Promotion Mission, involving an amount of Rs. 25,000 crore for six years, from 2025 to 2031. The key focus of the new financial support is said to be providing easy and affordable credit to the exporter community. In a so-called strategic shift, the government is also pushing Indian exports to destinations outside the US.
However, such efforts are unlikely to yield significant results in the highly competitive global export market, led by China. India’s realisation on the need for pushing up exports seems to have come too late. The proposed export support looks too little coming rather too late to make any visible impact on the country’s export trade anytime soon. It is not going to be easy for India to compete with other fast emerging export countries such as Vietnam, Indonesia, Malaysia and Mexico to firmly put it on the global export map. To make India a global export nation of prominence, the country will have to overhaul its industrial trade and investment policies without any further delay. (IPA Service)
