US Tops India’s Trade List in H1 2024 as the Latter Eases Restrictions on China

By Chetna Gill

The US regained its position as India's top trading partner in the January-June period of this year, with trade between the two countries increasing by 5.3% to $62.5 billion, according to a report by the Delhi-based Global Trade Research Initiative (GTRI). However, during the same period, India recorded its largest trade deficit with China. In the 2023-24 period, China had briefly overtaken the US as India's leading trading partner by a small margin.
India's foreign trade reached a new high of $849 billion in the first half of 2024, reflecting a 5.8% growth compared to the same period in 2023. This increase was primarily driven by a 6.05% rise in exports.
According to an analysis by the GTRI, India's merchandise exports rose by 5.41% to $230.51 billion in the first half of 2024. However, India experienced a significant trade deficit with China, amounting to $41.6 billion, as exports to China were only $8.5 billion compared to imports of $50.1 billion from January to June 2024.
India's export landscape was dominated by industrial products, which accounted for $140.79 billion of the total exports. In contrast, exports of agricultural goods, meat, and processed foods faced a slight decline, including a steep 40.47% drop in sugar exports. Out of the 239 countries to which India exports goods, 126 showed positive growth, contributing to 75.3% of India's total exports. Notable increases were seen in exports to the US, UAE, Netherlands, Singapore, and China, while exports to 98 countries, such as Italy, Belgium, Nepal, and Hong Kong, declined.
Exports to the US increased by 10.5%, rising from $37.7 billion in the first half of 2023 to $41.6 billion in the same period in 2024. The UAE saw an even larger growth of 24.9%, with exports climbing from $15.8 billion to $19.7 billion. On the services side, exports grew by 6.9%, reaching $178.2 billion, although this was a slower pace than the 17.7% increase recorded in the first half of 2023. Services imports also rose by 5.79%, totaling $95 billion. Overall, while India's merchandise and services exports grew, China managed to surpass India with a 6.9% increase in merchandise exports and a 14% growth in services exports.
The latest Global Trade Update from UN Trade and Development (UNCTAD), released on July 2, presents a cautiously optimistic outlook for global trade in 2024, with a projected GDP growth rate of about 3%. This growth is expected to be fueled by increased exports from China (9%), India (7%), and the US (3%), while Europe's exports are predicted to remain flat, and Africa's exports are expected to decline by 5%. Several factors are contributing to low global growth, including the ongoing conflict in Ukraine, persistent high inflation, stricter monetary policies, and financial instability.
However, these issues might soon be eclipsed by new subsidies and protectionist measures from the EU and the USA. GTRI founder Ajay Srivastava advises that India should continue to enhance product quality and supply chain competitiveness. He also suggests that as major economies become more inward-looking, India should retain its policy flexibility, particularly regarding new issues in Free Trade Agreements (FTAs) and the Indo-Pacific Economic Framework for Prosperity (IPEF).
Parallelly, in a pivotal move aimed at bolstering India's electronics manufacturing sector, an inter-ministerial panel has greenlit several investment proposals, including those involving Chinese companies, sources familiar with the matter revealed.
The approvals, among the first of their kind amidst heightened scrutiny and border tensions, mark a significant development in India's approach to foreign investments, particularly from China. Key beneficiaries of these clearances include Luxshare, a major Chinese electronics manufacturer known for its role as an Apple vendor, and a joint venture between Bhagwati Products (Micromax) and Huaqin Technology. The latter partnership will see the Chinese firm holding a minority stake. Additionally, proposals from Taiwanese firms with connections to Hong Kong have also received the panel's nod.
The decision to approve these investments comes amid mounting pressure from the electronics manufacturing industry in India, advocating for deeper integration of supply chains through collaborations with Chinese entities. This push follows amendments in the Foreign Direct Investment (FDI) policy under Press Note 3 in 2020, requiring prior government approval for investments from countries sharing a land border with India, chiefly aimed at curbing potential national security risks.
The approvals are contingent upon stringent conditions designed to mitigate risks associated with foreign investments. These include restrictions on Chinese nationals holding executive positions in joint ventures or foreign-owned companies operating in India. Moreover, Chinese firms are restricted to minority stakes in partnerships with Indian entities, ensuring a balance that supports local interests while leveraging foreign expertise.
According to industry reports, the delay in approving investments with Chinese links has purportedly cost the Indian electronics manufacturing sector significantly in terms of production losses and job opportunities. Industry estimates suggest losses amounting to $15 billion and the potential creation of 100,000 jobs over the past four years.
Luxshare, for instance, intends to establish manufacturing facilities in Tamil Nadu, initially focusing on products other than Apple devices. Meanwhile, the Bhagwati-Huaqin joint venture has already taken over Vivo's former manufacturing unit in Noida, signaling imminent production commencement.
Looking ahead, the government's emphasis on local manufacturing is poised to gain further momentum with the proposed Production-Linked Incentive (PLI) scheme for electronics components. Industry stakeholders have advocated for a substantial PLI package to support domestic production and reduce dependency on imports, particularly from China, for critical components like displays and battery cells.
India's trade and investment landscape in the first half of 2024 reveals a challenging effort to balance its relationships with both the United States and China. Despite attempts to diversify its exports and build broader trade partnerships, China remains a dominant player in India's market. The substantial trade deficit with China reflects India's ongoing dependence on Chinese goods, especially in sectors where China has a competitive edge in manufacturing. This reliance complicates India's goal of reducing dependence on any one country and fostering a more varied trade portfolio. 
Moreover, India's strategy to balance its economic ties between these two major powers is fraught with difficulties. Favoring Chinese investments could jeopardize relations with the US, especially in light of the intensifying trade rivalry between Washington and Beijing. Therefore, India faces the challenging task  (if not difficult) of managing its trade and investment strategies carefully, seeking to benefit from both US and Chinese markets while protecting its national interests and maintaining strategic autonomy. 

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