The Central Board of Indirect Taxes and Customs (CBIC) recently imposed anti-dumping duty on five Chinese goods, including vacuum-insulated flasks of a certain thickness and aluminium foil.

What is Dumping?

• Dumping: When a country exports goods at a price lower than the price in its own domestic market, causing price discrimination.
• WTO Definition: A situation of international price discrimination where the “normal value” in the exporting country is higher than the “export price.”

Anti-Dumping Measures Under WTO Rules

• Countries can impose anti-dumping duties to protect domestic industries if:
  • There is material injury to domestic producers.
  • There is a threat of injury or material retardation to domestic industries.
• Anti-dumping duties are imposed up to the dumping margin (difference between normal value and export price).
• Duty ≤ dumping margin (normal value – export price) + customs duty.

Reasons Dumping is Contentious

• Unfair Trade Practices: Dumping is viewed as an unfair trade practice that exploits global free trade systems.
  • It allows exporters to take advantage of price disparities and flood markets with cheaper goods, undercutting domestic industries​.
• Threat to Domestic Industries: Domestic industries may face material injury due to cheaper imports.
  • Prolonged dumping can lead to the closure of domestic firms and loss of employment, impacting the economy​.
• Violation of Free Trade Principles: Dumping contradicts the principles of fair competition and distorts market dynamics.
  • While free trade promotes lowering trade barriers, dumping exploits this openness, giving unfair advantages to the exporting nation.
• Chinese Manufacturing Advantage
  • China’s advantage stems from:
    • Low labor costs.
    • Government subsidies.
    • Economies of scale.
  • These factors make it difficult for other countries, including India, to compete effectively.
• Potential for Market Monopolization: Sustained dumping can drive local producers out of the market, allowing the dumping country to establish a monopoly.
  • Once local industries collapse, the exporting country can raise prices, exploiting market dominance.

Economic Engagement

• Bilateral Trade: India-China trade reached $118.4 billion in FY24, with China reclaiming its position as India’s top trading partner, surpassing the United States​.
  • India’s imports from China amounted to $101.74 billion, constituting 15% of India’s total imports.
• Trade Deficit: India’s trade deficit with China remains a major concern, crossing $83 billion in 2023.
  • The trade deficit is widening due to India’s limited export basket (primarily raw materials and intermediate goods) and China’s dominance in high-value manufacturing and technology sectors​.

Key Concerns in India-China Economic Ties

• Widening Trade Deficit
  • Export-Import Imbalance: India exports mostly raw materials like iron ore and cotton, while it imports high-value manufactured goods such as electronics, telecom equipment, and machinery.
  • Barriers to Indian Exports: China imposes non-tariff barriers on Indian exports, especially in sectors like pharmaceuticals, IT/ITeS, and agricultural products.
• Over-Dependence on Chinese Imports
  • Critical Sectors Vulnerability: India depends heavily on China for pharmaceutical ingredients (APIs), electronic components, and telecom equipment.
  • Risk to Self-Reliance: Over-reliance on Chinese imports undermines India’s goal of achieving self-reliance through the Atmanirbhar Bharat initiative.
• Investment and FDI Restrictions
  • Policy Shift Post-Galwan: Following the Galwan clash in 2020, India tightened its Foreign Direct Investment (FDI) rules, requiring prior government approval for investments from countries sharing land borders with India.
  • Gradual Opening Post-2024: In 2025, India is reportedly considering easing restrictions on Chinese investments, especially in sectors where Chinese expertise can enhance India’s manufacturing capabilities.
    • For instance, the JSW Group acquired a stake in MG Motors, previously controlled by China’s SAIC Motors, through a domestic partnership model​.
• Non-Tariff Barriers and Market Access Issues
  • Barriers to Indian Goods: China imposes stringent regulatory standards and non-tariff barriers that restrict Indian exports.
  • Need for Reciprocity: India seeks to use its openness to Chinese investments and trade as leverage to demand greater market access for Indian goods in China.

Way Forward for India-China Economic Relations

• Diversify Trade and Reduce Dependence on Chinese Imports: Implement the China Plus One strategy to source critical imports from alternative countries.
  • Promote domestic manufacturing through Atmanirbhar Bharat to reduce reliance on Chinese goods in key sectors like electronics, telecom, and pharmaceuticals.
• Strengthen Domestic Manufacturing and Export Capabilities: Encourage investment in high-value manufacturing and technology sectors to reduce trade imbalances.
  • Develop India’s capabilities in electronics, telecom, and APIs (pharmaceuticals) to enhance global competitiveness.
• Negotiate Greater Market Access for Indian Goods: Use India’s openness to Chinese investments as leverage to demand reciprocity for Indian exports.
  • Engage in sustained diplomatic efforts to remove non-tariff barriers (NTBs) imposed by China on Indian goods.
• Calibrate FDI Policy to Attract Selective Investments: Gradually ease FDI restrictions on Chinese investments in sectors that enhance India’s manufacturing capabilities.
  • Prioritize joint ventures and technology partnerships to mitigate risks and encourage knowledge transfer.
• Enhance Anti-Dumping Mechanisms and Trade Safeguards: Strengthen the role of DGTR (Directorate General of Trade Remedies) to monitor and impose anti-dumping duties where necessary.
  • Regularly review import data to safeguard domestic industries from injury caused by dumping.
• Strengthen Digital and Cybersecurity Framework: Safeguard India’s digital infrastructure by reducing dependence on Chinese technology.
  • Promote indigenous development of 5G, AI, and cyber defence systems to enhance digital security.

Conclusion

To ensure a balanced economic relationship with China, India must pursue a multi-pronged strategy focused on reducing dependency, enhancing domestic manufacturing, negotiating market access, and protecting critical sectors. A calibrated approach will strengthen India’s economic resilience while safeguarding its strategic interests.