China's Economic Slowdown: Impact on India
China, the world's second largest economy, is facing a slowdown due to various factors such as the zero-covid policy, the power shortage, the property sector slump and the geopolitical tensions. How does this affect India, which is one of China's largest trading partners and a regional rival? Here are some of the positive and negative impacts of China's economic slowdown on India.
Positive Impacts
- Reduced crude oil prices: China is the world's largest crude oil importer, so its reduced demand has led to a drop in global oil prices. This benefits India, which imports more than 80% of its crude oil requirements. A lower import bill can help India's economy, reduce its current account deficit and strengthen the value of rupee.
- Better trade deals: Many countries are adopting a China plus one policy, in which they diversify their investments and businesses away from China to other destinations. This creates an opportunity for India to attract more foreign direct investment (FDI) and trade with major economies such as the US, Japan and Europe. India can also leverage its strengths in sectors such as IT, pharmaceuticals and renewable energy to gain a competitive edge over China.
- Strategic advantage: China's economic slowdown can also weaken its military and diplomatic clout in the region and beyond. This can give India an advantage in dealing with border disputes, regional security issues and multilateral forums. India can also deepen its ties with other countries that share common concerns about China's rise, such as Australia, Vietnam and Taiwan.
Negative Impacts
- Lower exports: China is India's third largest export destination, accounting for about 5% of India's total exports. Some of the major items that India exports to China include iron ore, organic chemicals, cotton and marine products. As China's domestic demand and industrial output decline, it will affect India's exporters and reduce their revenues.
- Higher imports costs: China is also India's largest source of imports, accounting for about 15% of India's total imports. Some of the key items that India imports from China include electronic components, machinery, pharmaceutical ingredients and solar panels. As China's supply chains are disrupted by lockdowns, power cuts and environmental regulations, it will increase the costs and delays for Indian importers. This can result in higher prices of some output products and affect India's inflation.
- Financial contagion: China's economic slowdown can also have spillover effects on the global financial markets and investor sentiments. As China's growth prospects dim, it can trigger capital outflows, currency depreciation and debt defaults. This can create volatility and uncertainty in the global markets and affect India's financial stability.
Conclusion
China's economic slowdown has both positive and negative impacts on India. While it offers India an opportunity to improve its trade relations with other countries and gain a strategic advantage over China, it also poses challenges for India's exports, imports and financial stability. India needs to adopt a balanced approach to deal with the changing geo-economic dynamics and leverage its own strengths to overcome the challenges.
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FAQ’s
How India may benefit from China's economic crisis?
The first global impact of a Chinese slowdown will also be a fall in global oil prices. We all know that India is a net importer of oil. Any fall in global oil prices will help India cut down its imports bill. It will also ease the pressure on rupee and will give a boost to India's foreign reserves.
How does the China crisis affect India?
China's share in India's exports decreased from 6.5 per cent in January-August 2021 to 3.5 per cent in January-August 2022. Share in India's imports remains broadly the same at 15 per cent. There is no let-up on the trade deficit due to the slowdown.
How does China affect India's economy?
While imports from China increased by USD 50 billion, exports increased by USD 2.5 billion during the same period. This has widened India's trade deficit. Trade with China constitutes more than 40% of India's total trade deficit.
How much of Indian economy is dependent on China?
A harmonised code analysis of 10 of the 14 industries identified under PLI shows increasing dependency on imports from the world by India. India's cumulative import share of these 10 PLI sectors from China has increased in FY 2022, to touch 47 per cent; the highest in the last four years (Chart 1).
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