• The pandemic has pushed up India’s trade deficit with China
• China remains the largest supplier of a number of goods for India
• India’s dependence on Chinese imports has increased in the past decade, especially computer hardware, electronic components and organic chemicals
• Early signs of slowdown in imports from China are visible in pockets. Persisting lockdowns in China and its consequent impact on India’s key imports could create headwinds for domestic industrial activity
  

Global supply chains were starting to recover from the pandemic’s impact when the Russia-Ukraine war, and then lockdowns in China, extended logistic and shipping delays yet again.

As part of its zero-Covid-19 policy, China has instituted stringent restrictions in major cities. Manufacturing activity in China has thus slowed: the official PMI (Manufacturing) for China fell to 47.4 in April (from 49.5 in March; an index below 50 indicates contraction). Within manufacturing, supplier delivery times are deteriorating, and new export orders have declined, too. The effects are being seen in economic activity indicators: China’s exports slowed to 3.9% on-year in April, from 14.7% growth seen in March. Retail sales contracted to -11.1% on-year in April (from -3.5% in March).

The more-stringent-than-expected lockdowns in China have prompted downward revisions to its growth forecast: S&P Global now expects China’s GDP to grow 4.2% in 2022 (compared with its March forecast of 4.9%). That said, these lockdowns are expected to affect domestic consumption more than industrial production (S&P Global, May 2022). However, supply-chain disruptions have been substantial, and these may impact India more directly, given India’s large import dependence on China in several segments.

In fact, China is India’s biggest import partner. At $94.2 billion, China accounted for 15.5% of India’s total merchandise imports of $609 billion in fiscal 2022.