InvestorQ : Is it true that India runs a trade surplus with the US and a trade deficit with China?
NISHA Nayak made post

Is it true that India runs a trade surplus with the US and a trade deficit with China?

Priyanka N answered.
1 year ago

There is a small change that happened in the year FY22. In the last few years, the mantle of being India’s largest trading partner had shifted from the UAE to the US to China and now it is back to the US being India’s trading partner. In the year FY22, the US once again emerged as India’s largest trading partner, although by a very tiny margin. But, what is so very special about the US once again emerging as India’s largest trading partner?

The reasons that India is uncomfortable with China being India’s largest trading partner are twofold. Let me explain. India currently runs a huge trade deficit with China but then it runs a big trade surplus with the US. It made more sense to expand India’s trade with the US than with China as it would ensure a positive CAR. Secondly, with the tensions at the border like in Ladakh and Doklam, India is not comfortable having China as the biggest trading partner.

How did the numbers exactly pan out in the fiscal year FY22? Total Indo-US trade stood at $119.42 billion in FY22, which is a good 48.3% growth over FY21. However, a lot of that is recovery from the COVID lows with a small portion of strengthening trade relations with the US. Now for the real numbers. In FY22, India’s exports to the US were $76.11 billion while imports were $43.31 billion. That gives India a trade surplus of $32.80 billion with the US.

The situation with China is the exact opposite. In FY22 Indo-China trade stood at $115.42 billion and that is also up 33.6% over FY21. However, India’s trade with China is largely tilted towards imports from China. Look at the numbers. Indian exports to China were $21.25 billion in FY22 while imports were a massive $94.16 billion. The Indo-China trade deficit alone is around $72.91 billion for FY22, which is 35% of the entire deficit.

That is why both India and the US are now talking and engaging more closely. However, the India response to the US sanctions on Russia could be a key factor. The problem for India is that the huge China deficit is without oil since India already runs huge trade deficits with Saudi Arabia, UAE and Iraq, from whom India imports most of the crude. Expanding the US trade will be the big challenge for India in the months to come.