Competing With China, India’s Trade Deficit Of $ -17.51 Bn Shows Huge Gap

India’s trade balance was at a deficit of $ -17.51 billion in June of this year, and China’s was a trade surplus, of a record high of $97.94 billion in the same month.

india-china flags
(Representative Image) (Photo: Pexels)

New Delhi: The China vs India debate in terms of economics, labour workforce and trade dependency are all about India and its ability to succeed in taking over China’s intensive manufacturing. At the moment, China sets itself much higher, with data from June of this year showing a vast disparity. India’s trade balance was at a deficit of $ -17.51 billion in June of this year, and China’s was a trade surplus, of a record high of $97.94 billion in the same month. A year earlier the same month saw China’s trade surplus at $50.14 billion, while India’s, in June 2021, was $-9.60 billion of trade deficit.

Data from the Lok Sabha shared by Minister of State, Commerce and Industry, Anupriya Patel in this Monsoon session also shows that total trade between the two countries increased to $115,419.96 million in 2021-22, from the previous year’s total trade of $86,399.4 million. Clearly, the competition is not thwarting the needs.

So, when questions on whether India could take over China’s manufacturing prowess are asked, the answer becomes one needing a look at the current state of skills and ambitions of where the country wants to focus its energy.

Both countries aim for expanding in industries which would require a skilled workforce. Make in India scheme launched first in September of 2014, is now focusing on 27 sectors. In the manufacturing sectors it has given 15 industries of focus, including aerospace and defence, automotive and auto components, pharmaceuticals and medical devices, textile and apparels, chemical and Petro chemicals, food processing, and gems and jewellery, amongst others.

China had also months later in March of 2015 launched “Made in China 2025” policy, with the aim to make China dominant in global high-tech manufacturing. The plan had proposed a three-step strategy of transforming China into a leading manufacturing power by the year 2049, which marks the 100th anniversary of the founding of the People’s Republic of China.

It placed nine tasks as priorities, which included promoting ten key sectors, of Biomedicine and high-performance medical apparatus, information technology, energy saving vehicles, Aerospace and aviation equipment, Maritime engineering equipment and high-tech vessel manufacturing, amongst others.

But for both, a skilled workforce would be required, and by the looks of it, for now India is behind China. According to UNDPs Human Development Report 2020, India’s skilled labour force was at 21.2 percent (2015–2019), at number 131 in the index.

UNDPs figures failed to give China’s exact percentage of skilled labour force, but placed it on the 85th position after Brazil whose skilled labour force was at 65.7 percent and before Ecuador which was at 47.0 percent.

China government’s website though put out a figure of over 200 million who make the skilled workforce on the Chinese mainland, among whom more than 50 million were highly-skilled workers, according to China’s Ministry of Human Resources and Social Security (MHRSS).

But Liu Kang, an official with the MHRSS, said that skilled workers account for only 26 percent of the total workforce, and that the country’s total number of skilled personnel is still insufficient for China’s job market given the huge demand of the country’s economic development.

Going by this percentage, India is not too far behind, while UNDPs assessment does show a vast gap.

But in India’s case there’s also the India Skills report 2021, which identifies three areas with the biggest skill gap, i.e., Data Science, Artificial Intelligence and Natural Language Processing. A prediction even before Covid-19 was the Future of Jobs 2018 report, which had said that more than 50 percent of India’s workforce would need to be reskilled to meet the demands of the evolving employability landscape by 2022.

In fact, Mahesh Vyas, CEO at Centre for Monitoring Indian Economy (CMIE) wrote that India has modestly shifted its exports toward non-labour-intensive goods. Vyas, also writes that in June this year, employment fell by a massive 13 million from 404 million in May to 390 million, becoming the biggest fall in employment during a non-lockdown month, while this may be more in the rural area, what is also worrisome is that June 2022 saw a fall of 2.5 million jobs among salaried employees.

Interestingly, even as India would want to shift to manufacturing focusing on a skilled workforce, we see what the current scenario is. Another point being that China will open a gap in the market for labour-intensive jobs, which will be waiting to be filled.

A working research paper ‘Who Will Fill China’s Shoes? The Global Evolution of Labor-Intensive Manufacturing’ in the National Bureau of Academic Research, looked at how the end of the reform-driven China trade shock would affect economic development in emerging economies.

China’s export prowess, it says, peaked first in labour-intensive manufactures – including apparel, footwear, home goods, and textiles—it is in these and related products where there appears to be a market opening.

“Just as the Asian Tigers – Hong Kong, Singapore, South Korea and Taiwan – later transitioned into capital-intensive manufacturing and business services, today China appears to be intent on graduating from being the world’s factory to become the world’s R&D lab.”

In 2018, the top 14 countries accounted for 19.2 percent of global exports in labour-intensive manufactures. And this group included India, but also Bangladesh, Pakistan, and Sri Lanka and others like Cambodia, Indonesia, Vietnam.

Collectively, these eight economies – Bangladesh, Cambodia, India, Indonesia, Myanmar, Pakistan, Sri Lanka, and Vietnam – accounted for 13.3 percent of global exports in labour intensive manufactures in 2018.

But critically, the paper says that India, despite its size, has managed only slightly more than a one-half percentage point increase in its global export share since 2000.