China is exporting a wide variety of sophisticated products, which have higher profit margins and create more jobs at home. It exported $6.7 billion of telecom equipment to India in the fiscal year that ended March 31, 2011, including cordless phones, cellphones and cellular base stations.
The lion's share of India's exports to China, in vivid contrast, are raw materials. The top two products, copper and iron ore, combined for nearly half of India's $19 billion in total exports in the fiscal year that ended March 31, 2011.
Indian traders say Chinese goods made up only 5% of their inventory five years ago but now account for more than half. Even Chinese-made portraits of Hindu deities have made their way to Sadar Bazaar. One trader was selling holograph images of the monkey-god, Hanuman, and the destroyer-god, Shiva. Traders who once used to travel across India, sourcing products from small-scale manufacturers, now make regular trips to China to purchase their inventory.
Left unchecked, large trade deficits threaten to thrust India into the same kind of balance-of-payments crisis it faced in the early 1990s, when New Delhi was forced to abandon decades of Soviet-style central planning and take its first steps toward economic liberalization. To address the problem, experts say, India needs to boost exports significantly and create a business environment that attracts foreign capital.
WSJ: Trade Gap Strains India-China Ties