Despite the numbers, India’s imports from China may have increased in 2023

In the first half of 2023, the trade between India and China experienced a slight decline in dollar value. This can most likely be attributed to the decrease in commodity prices and the devaluation of the yuan compared to the dollar, rather than a decrease in the amount of goods traded.

Let me break down the numbers for you. According to China's customs data, China's exports to India amounted to $56.53 billion, which is slightly less, about 0.9%, compared to the $57.51 billion recorded in the first half of last year. On the other hand, India's exports to China also experienced a slight decline, dropping from $9.57 billion in the first half of 2022 to $9.49 billion. It's important to note that the imports recorded by China may not exactly match the exports reported by India. This is because exports are reported based on the free-on-board (FOB) basis, while imports are reported after including the costs of freight and insurance to the FOB prices.

One can easily perceive this as a component of the general decrease in worldwide trade and expansion. However, upon further scrutiny, it becomes apparent that the actual trade quantities between India and China might have increased. There are two factors that support this notion, aside from the fact that India – despite its growth being estimated at a modest 6.2% for the year – is still a thriving economy that demands abundant resources to support its progress.

There is a primary factor at play here, and it involves the worldwide decrease in the value of goods. According to the Economist Commodity Price Index, there has been an 8.9% drop in dollar terms. As a result, the expenses associated with the raw materials India has been acquiring from China have significantly decreased. In a global economy that is experiencing a slowdown and weakened demand, it is highly improbable for exporters to maintain control over pricing. Instead, they will have no choice but to transfer the reductions in input costs to the end consumer.

An additional factor is the decrease in the value of the yuan in relation to the dollar. In comparison to last year, the yuan has dropped by 6.7% against the dollar, resulting in a situation where the same dollar can acquire approximately 7% more goods that are priced in yuan. Naturally, if prices experienced a 7% increase within the same time frame, the quantity of goods would remain unaffected. However, inflation in China has been exceptionally low, only rising by 1.2% since last year. Consequently, the decline in the yuan implies that the dollar holds more purchasing power in practical terms.

Put simply, the purported decrease of 0.9% in the value of imports from China during the initial six months of 2023 might be misleading as it suggests a decline when in reality the volume of goods brought in from China could have actually gone up rather than down.

This aligns with predictions for an economy similar to India's amidst a decelerating global scenario. India's expansion is not heavily dependent on outside demand, but rather on domestic demand. Therefore, although certain sectors of the economy that heavily rely on exports would be negatively affected by the global downturn, the overall economy is likely to benefit from the decline in commodity prices.

In a scenario of robust growth worldwide, the prices of energy, metals, food, and non-food agricultural products tend to increase. Consequently, with an equivalent amount of money spent on imports, India would have a reduced capacity to acquire these commodities. Conversely, when growth falters, the opposite occurs. Prices of all commodities and energy decline, enabling India to import a greater quantity of these goods without incurring additional costs. This situation proves beneficial for the overall economy.

The trade figures between India and China align with this trend, which should be a cause for celebration rather than worry.

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