Context: China still remains the largest source of critical imports for India, from mobile phone components to pharmaceutical ingredients.  

• India is working on a multipronged strategy to reduce this reliance, which is a bigger concern than the imbalance in trade. 

Trade dependency

• At present, India exports plenty of raw materials and intermediate products from China.
• India also imports finished products and key intermediates like active pharmaceutical ingredients are also from China. If China were to stop the APIs for penicillin, we would not be able to produce it in this country.
• In terms of capital goods, Indian manufacturing sector is very much dependent on supplies from China, machineries being the prime among them. Electrical machinery, semiconductor driven machinery etc. are examples.
• Fertilizers, which is crucial for our economy and food security comes from China.
• Plenty of limited value consumer goods, have flooded the Indian market to a large extent. 
• If India and China’s trade stops, China would only have 3% of its and not even 1% of its imports at stake. But India on the other hand will lose 5% of exports and 14% of imports.

What should be done? 

• India needs to come up with a multipronged strategy to reduce this dependence, ranging from the Production Linked Incentive (PLI) scheme to boost domestic manufacturing. 
• India’s foreign missions should also focus to find alternatives to China, and make use of free trade agreements (FTAs) with other trading partners.
• COVID 19 has accelerated this process. India shared with its foreign missions lists of items critically dependent on China, following which the missions linked up with suppliers in their countries.
• China still remained the biggest source of India’s imports, but imports last year fell 10.8%, the lowest since 016. Two-way trade in 2020 reached $87.6 billion, down by 5.6%, while the trade deficit declined to a five year low of $45.8 billion.
• Although India had made improvements in Ease of Doing Business, offering attractive terms to foreign investors, it attracted little investments. 
• We should now analyse the pattern of FDI inflows into China and India and make improvements accordingly. 
• The policies should look at every dimension to address the varied factors that go into making attracting investments work.