INDIA–CHINA TRADE IN LIGHT AND HEAVY MANUFACTURING SECTOR: A COMPUTABLE GENERAL EQUILIBRIUM ANALYSIS

Abstract

The trade relations between India and China have been intensified since 2001. The aim of this paper is to examine the effects of tariff reduction by India and China on bilateral imports in light and heavy manufacturing sectors. The results are evaluated in terms of welfare, output, employment and the potential trade flows between India and China in CGE framework using the GTAP-model. GTAP database version 10, covering 141 countries/regions and 65 sectors, with a base year of 2014, have been used. Overall results show that India and China’s trade relation has improved in last two decades, but still there is a lot of untapped potential to bring the welfare gains for both trading partners. This study concludes that deeper integration by tariff reduction on imports of light manufacturing and heavy manufacturing sectors between India and China may not be welfare enhancing for India, however there are substantial welfare gain for China. The study suggests that a well calculated and strategically negotiated tariff reduction in light and heavy manufacturing sectors may create a win–win situation for both partners. The study argues that China should offer a preferential market access to India for mutually beneficial and welfare enhancing engagements for both countries.