Take a walk into an Indian toy shop and as well as picking up a new favourite plaything for a child, you might just get an insight into how the nation is battling for a batter economic relationship with its all-powerful neighbour China. Six years ago, in an attempt to push local manufacturing and keep substandard toys out of its market, India raised tariffs on imported toys from 20% to 60% and eventually to 70%. Retailers were up in arms and said that domestic firms could never match the foreign-made stuff.
But the combination of higher customs duties and quality control standards worked. Indian imports of toys fell by a third from nearly $300mn in 2020 to $100mn this year, while exports rose from around $129mn to $200mn in the same period. Moreover, the country was able to drastically reduce its dependence on China, which held a 70% share of the local toy market.
The sector stands out as a rare exception in India's otherwise unsuccessful attempts to rebalance an increasingly lopsided trading relationship with its larger neighbour, which some experts say, is now among the most asymmetric in the world. Even as diplomatic ties between the two countries completely broke down following the Galwan Valley clashes in 2020 and Delhi announced a slew of anti-dumping duties and a ban on Chinese apps such as Tik Tok, its trade deficit with Beijing has only ballooned - from $44bn in 2020 to an eye-popping $112bn this year. "India's economic dependence on China continued to deepen while political, security, and investment ties were at their lowest point," Kevin Zongzhe Li, a Washington-based Fellow at the Asia Society Policy Institute's Centre for China Analysis, told the BBC.
More worryingly, exports to China remained below pre-pandemic level even as imports doubled in this period. "China now supplies over 30% of India's industrial imports, and India depends on it for more than 100 critical products. And the imbalance is worsening," says Ajay Srivastava of the Delhi-based Global Trade and Research Initiative (GTRI).
If the rapid pace of imports continues, bilateral deficit could jump to $134bn, giving Beijing even more leverage over Indian industry, according to Srivastava. On the sidelines of the Brics summit in Delhi in September, amid a deepening thaw between the Asian giants, Prime Minister Narendra Modi and Chinese President Xi Jinping vowed to address, external these "structural trade imbalances and supply chain issues". But given how deeply entrenched Chinese imports have become to India's industrial economy, this will be a formidable task for Delhi, experts told the BBC.
That's primarily because India depends on China to not merely consume end-products, but increasingly to produce industrial goods. To be true, India has reduced its reliance on imports of finished goods such as smartphones and solar equipment, and now produces more than a quarter of the world's iPhones. "Yet, production remains largely assembly-based and depends heavily on imported components, particularly from China," says Srivastava.
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