Can India overcome its massive trade deficit with strategic manufacturing policies?
Other than the need to import gold and oil, the heart of our trade deficit stems from imbalanced trade with Asian economies. Of these, the biggest is our trade deficit with China, at over $83 bn a year. Our industrial machine can’t compete with the Chinese one as they sell to us 6× what we sell to them.
Is this all a result of free trade? Not quite. What really exists are state-backed national manufacturing systems that compete for the best industries in the world economy. And that is where China, along with other East Asian nations, has had tremendous success.
Lest we forget, China’s manufacturing behemoth is built on the back of state-owned enterprises, subsidies, export discipline and preferential support to its own champions. And vast investment in logistic and energy infrastructure, which makes running factories cheap and easy. Best examples of such support are EVs, where China accounts for over 80% of the global non-hybrid EV production capacity, and solar module manufacturing, where it also controls about 80% of global production capacity.
Beijing poured over $29 bn into EV firms between 2009 and 2022. For the solar module industry, Chinese state banks extended over $43 bn worth of subsidised loans to various manufacturers, and provided financial incentives for consumption of these solar panels. Growth of China’s steel and shipbuilding industries lends the same story of government support and import resistance till the creation of massive production capacities.
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