Trade between India and China could be a major deal, especially if both countries agree on a “rules-based” system for resolving disputes.
In a new paper, economists at the Institute of International Economics and Finance (IIEF) have forecast that India’s trade deficit with China could reach $50 billion by 2019.
That could be significant for India, which has the world’s second-largest trade deficit after the United States.
But the paper also notes that trade deficits with both India and the United Kingdom are projected to rise to $80 billion by 2021.
“We believe the trade deficit will not be as big as some commentators have made it out to be,” said a statement from the IIEF.
“The new paper has a lot of caveats.
The main one is that it is based on a projection based on trade flows from India and not on actual figures.
It does not take into account the impact of India’s large trade deficit on its economy,” said Rajeev Choudhary, the paper’s author and a research associate at the IIEEF.
In addition to its large trade deficits, India also has a huge trade deficit in services.
That gap could be even bigger if India has a hard time paying for imports, said Choudham.
India’s trade with China is a big problem because of India having a big trade deficit, said Rajesh Gupta, the IIEF’s director of policy research.
India, for instance, has a trade deficit of about $20 billion with China, which accounts for about 10 percent of India and about 14 percent of China’s trade.
China, on the other hand, has about $70 billion in trade with India.
India has long complained about Chinese imports, which it says unfairly distort its prices and drive down its exports.
China says India’s import surpluses are the result of unfair trade practices, while India says that it has unfairly inflated the cost of Chinese products.
The IIEF study has some other caveats, too.
It assumes that India can agree on rules-based international trading systems for resolving trade disputes, something that is far from certain.
The paper also cautions that the trade imbalance with China would continue to grow unless China agreed to lower its import prices.
India’s current trade deficit stands at $75 billion, which is far above the current trade surplus with China of $46 billion.
The new study was written by Rajesh Sharma, a senior economist at the India Trade Policy Research Centre.
He was not available for comment.