India needs to restructure policies for trade with China: RBI study

India could gain from its economic engagement with China only if it restructures domestic and external policies and pursues a cautious approach to ensure that the country's long-term interests are preserved, according to a research study by the Reserve Bank of India.

This is required to address the widening trade deficit of India with China and to ensure an effective partnership between the two neighbouring countries, RBI said in a project research study titled `India China Bilateral Trade Relationship' on its website.

The research by Prof S K Mohanty for New Delhi-basrd Research and Information System for Developing Countries (RIS)  undertook an in-depth analysis of trade linkages between India and China.

The study recognises the irreversible nature of economic liberalisation undertaken in both countries, in their quest for greater integration with the world economy and attempts to identify synergies in their development process by analysing existing patterns of their trade and sectoral complementarities for further economic engagement.

The major findings of the study are:

• As the trade flows of both the countries are concentrated in Asia, particularly Southeast and East Asia, regionalism can offer a credible platform to augment trade;
• Unlike popular perception, India's imports from China have been uncompetitive in several sectors, including textiles and clothing, automotive, chemicals, etc among others;
• Based on the methodology of Revealed Comparative Advantage (RCA), the study finds that these products could have been easily imported from other competitors of China at a comparatively cheaper price;
• Based on simulations under computed general equilibrium (CGE) modelling, the study finds that liberalisation among ASEAN+3 countries alone may not generate the expected level of welfare gain irrespective of their level of economic integration; and
• Based on dynamic panel data analysis, the study finds that appreciation or depreciation of the Yuan has significant impact on India's exports to other countries.

The research project study aims at disseminating research output undertaken with the support of external experts under the RBI's scheme for support of economic research in areas like real economy, monetary sector, financial economics etc.

RBI said these reports are also intended to encourage policy-oriented research and also provide data and reports for researchers at large.