New Delhi – China has overtaken the United States to become India’s largest goods trading partner in the fiscal year 2023-24, achieving this feat by a narrow margin of $116 million. However, it is the US that has consistently delivered trade surpluses for India year on year.
In FY24, India’s merchandise trade with China reached $118.4 billion, reflecting a 4.04% growth. Conversely, trade with the US contracted by 8.59%, totaling $118.2 billion. India’s exports to the US fell by 1.3% to $77.5 billion, while imports from the US dropped significantly by 19.8% to $40.7 billion. In contrast, exports to China grew by 8.8% to $16.6 billion, and imports increased by 3.29% to $101.7 billion, resulting in a trade deficit with China that exceeded $85 billion.
The slowdown in the US economy impacted India’s exports, particularly in sectors such as gems and jewelry, apparel, and chemicals, although the loss was partially offset by smartphone exports. The reduction in imports from the US was largely due to a decline in petroleum trade. However, a lower interest rate environment and a resurgence in US demand could potentially shift the balance back in favor of the US. Already in April, the US has surpassed China with a total trade of $11.8 billion compared to $8.8 billion with China. Moreover, in April, the trade balance with the US was in India’s favor.
India also enjoys a consistent services trade surplus with the US.
From China, the largest category of imports in FY24 was machinery, which accounted for nearly 50% of total imports. Other significant imports from China included plastics and related articles, chemicals, steel and steel products, and fertilizers.
India’s ambition for greater trade integration with Western countries is driven by the trade surpluses it enjoys with them, unlike the deficits that persist with Eastern nations. A detailed analysis of merchandise trade trends with India’s top 25 trade partners in 2023-24 reveals that India has a trade surplus with only seven countries, including Bangladesh, where the surplus stands at $9.2 billion.
Bangladesh is a unique case as it relies heavily on India for cotton yarn, petroleum, and electricity. After the US, the Netherlands offers a surplus of $17.3 billion, acting as a hub for India’s petroleum trade with Europe and a promising market for smartphones, telecom instruments, and pharmaceuticals. Other countries where India has a trade surplus include the UK ($4.5 billion), Italy ($2.9 billion), France ($902 million), and Belgium ($598 million).
Recent years have seen a shift in India’s approach to free trade agreements (FTAs), with a geographic focus moving from East to West. While FTAs with many major Eastern traders have been in place for over a decade, efforts are ongoing to finalize trade deals with the UK and the European Union. Discussions on an FTA with Canada were halted due to political developments, and negotiations with the US have been sporadic, focusing on a limited trade agreement.
In South America, India is working to expand its preferential trade agreement with MERCOSUR, which includes Argentina, Brazil, Paraguay, and Uruguay. Negotiations are also underway with Peru and Chile in the region.
