After Singapore and Hong Kong, Vietnam has emerged as the third Asian trade partner, which counts on massive Chinese investments, to turn its usual trade deficit with India into a decent surplus in a span of just three years.
Between FY18 and FY20, India’s trade balance with Vietnam swang from a surplus of $2.8 billion to a deficit of $2.2 billion, according to official data. While India’s imports from the south-east Asian nation jumped from $5 billion in FY18 to $7.3 billion in FY20, its exports crashed from $7.8 billion to $5.1 billion during this period.
This was also the period (FY18-20) when Beijing’s trade war with Washington hit a peak and China was scouting for destinations to divert a part of its supplies from the American market. Even India has been pressuring China in recent years to trim a huge bilateral trade imbalance in favour of the neighbour.
These may have promoted China to divert its supplies to India through some Asean members and Hong Kong by abusing the rules of origin of imported products, analysts have pointed out. But this also makes it very difficult for India to target China effectively, as Beijing can bypass New Delhi’s tariff and non-tariff measures by diverting its supplies through these destinations. Vietnam is a part of the 10-member Asean with which New Delhi has a free trade agreement (FTA).
Interestingly, imports of not just electronics and electricals (of which Vietnam is a key supplier) but also copper products, capital goods, iron & steel and inorganic chemicals have risen since FY15. China, undoubtedly, remains the dominant exporter of these products.
Diversion basically serves two purposes: the essentially Chinese products enjoy duty-free access and it also doesn’t reflect in China’s overall massive trade surplus with India, which stood at a massive $48 billion in FY20.
Already, as FE had reported earlier, an unusual 118% year-on-year spurt in India’s merchandise imports from Singapore to a record $16.3 billion in FY19 had alarmed customs officials. Consequently, India’s trade balance with Singapore exacerbated dramatically, from a surplus of $2.7 billion in FY18 to a deficit of $4.7 billion in FY19. Similarly, India ran a trade deficit with Hong Kong, a proxy for Beijing, for the first time in over two decades in FY19. The deficit widened to $6 billion in FY20 from $5 billion in FY19, marking a sharp turnaround from a surplus of $4 billion in FY18.
Courtesy – Financial Express