India-China Merchandise Trade: Issues and Opportunities

This study investigates India—China goods trade in global and bilateral markets to find out areas of specialisation and competitiveness in various sectors of the economy. China has performed much better than India. India and China look strong in the global market in number of products and comparative advantage, but the nature of products differentiates India from China, and these differences can be attributed to China's cost-effective manufacturing performance. China translates most of its GRCA products into Bilateral Revealed Comparative Advantage (BRCA) products. For China, the Indian market is similar to the world market, but the opposite is not true. In 2015 the number of products have increased in the export basket of India compared to China. And few high valued products which were generally seen consistent in China's export basket destination to India and world market up to 2012 emerged in India's export basket in 2015 as comparative advantageous in partner's market. China's export basket is looking weaker than India's export basket in bilateral markets in 2015. SMART simulation result shows trade creation larger than trade diversion but the revenue loss is in a greater amount than welfare gain for both the countries. Therefore, the immediate effect of an FTA at zero tariff does not seem to be a feasible route for cross border trade given the fact that India needs revenue to build its internal economic infrastructure and China already has a robust manufacturing sector in the economy.