The depreciation of the yuan may expand the country’s trade deficit, she said.
“There is the issue of excess capacity in China leading to dumping and the apprehension that products will become even cheaper due to the currency devaluation because of what has happened now is the third major devaluation. There is also the fear that subsidized imports are coming in. These are worrying developments. India’s trade deficit with China will grow even more,” Ms. Sitharaman told reporters after the first meeting of the Council for Trade and Development.
India’s merchandise trade deficit with China had ballooned from a minuscule $1.1 billion in 2003-04 to a whopping $48.5 billion in 2014-15 or over four times India’s exports to China ($11.9 billion) in FY’15. During April-September this fiscal, imports from China already touched $31.6 billion while India’s exports to that country were only $4.5 billion, leaving a trade deficit of $27.1 billion.
However, cumulative FDI inflows from China into India during April 2000-September 2015 were only $1.2 billion (or just 0.47 per cent of the total $265 billion worth overall FDI inflows into India in those 15 years), much less than the actual potential.
There are reports of excess capacity in China, especially in sectors such as steel, leading to alleged instances of dumping of such products in several countries, including India, at rates below those in China or even lower than the production cost, Ms. Sitharaman said.
The commerce ministry would soon hold meetings with the Chief Economic Advisor Arvind Subramanian and the NITI Aayog Vice-Chairman Arvind Panagariya on the developments, she said.
The government is considering proposals to protect domestic steel manufacturers from cheap steel imports mainly from China, the minister said
A tariff line-wise detailed assessment was being done on the steel sector to find out the sub-segments that are affected the most and need protection in terms of anti-dumping duty, countervailing duties (or anti-subsidy duties) and minimum import price, she said. “We will not rush into any decision. The Commerce Ministry is in consultations with the Finance and Steel Ministries. We are looking at item by item to see which all segments are hurt due to the surge in cheap imports,” the minister said.
As a result of the plunge in value of the Chinese currency, stock markets across the world, including in India, tumbled. Asked whether there was a need to let the rupee fall further to make exports more competitive, Ms. Sitharaman said though such a move may be good for exports, there are views against it too.
More China investments
To offset the impact of trade deficit, India had sought more investments from China especially in mega industrial parks (in States such as Gujarat and Maharashtra) so that products including electronic items, power equipment, footwear, industrial machinery, active pharmaceutical ingredients and apparel in addition to several value-added products can be manufactured in those parks and then shipped to China and other overseas markets. That way, India could increase its exports and simultaneously reduce the trade deficit with China. But, huge Chinese investments are yet to happen.
In November, Ms. Sitharaman, during a meeting of the Parliamentary Consultative Committee (attached to the Ministry of Commerce & Industry), had voiced concern over China “making efforts to stall” India’s shipments to that country.
China, is continuing to stall India’s exports using non-tariff barriers such as phytosanitary stipulations and standardisation measures. This is despite India laying emphasis on sectors such as IT/ITeS, pharma, textiles, gems and jewellery, fruits and vegetables and meat to increase the country's exports, she said.
India had taken up with China, during bilateral meetings and also at the sidelines of important meetings such as the G-20, the issue of the widening trade deficit but the Chinese government only accepted India’s concerns but had not taken action on them, Ms. Sitharaman said.
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