Trade Prospects in Fertilizers, Rare Earth Minerals, Electronics Production, and Foreign Direct Investment Between India and China, Given 50% Customs Duties

India has experienced a significant relief as China has lifted export restrictions on key industrial inputs, including Di-Ammonium Phosphate (DAP) fertilisers, rare earth magnets, and tunnel boring machines.

The decision comes after a series of diplomatic talks between the two nations, with External Affairs Minister S. Jaishankar raising the issue with his Chinese counterpart Wang Yi. This development is a crucial step towards handling export curbs in the coming months, particularly for India's auto and electronics industries, which have been worried about restrictions on rare earths.

Rare earth minerals are vital for making magnets used in batteries, motors, and advanced electronics. India is heavily dependent on China for these minerals, with around 95% of its specialty fertiliser needs sourced from China directly or through intermediaries.

The suspension of supplies had pushed prices up by 40%, causing concerns for Indian farmers during the Rabi season. With the demand season for crops like grapes and bananas beginning in September, fresh restrictions were likely to raise fertiliser costs further.

India's dependence on China for fertilisers is not a new issue. In the past, Chinese curbs on fertiliser exports had disrupted supplies, affecting India's agricultural production. This comes after India has been affected by supply chain disruptions related to global geopolitical tensions, including sanctions and trade restrictions involving Russia, a major supplier of fertilisers to India. Competitors like China, Vietnam, Pakistan, Nepal, and others could potentially benefit from these disruptions.

As India balances its ties between Washington and Beijing, these latest talks may prove crucial in ensuring the smooth supply of key industrial inputs. The lifting of export restrictions by China is a positive step towards improving relations between the two nations, which had been strained after the deadly Galwan Valley clashes between their troops in June 2020.

Prime Minister Narendra Modi is meeting Chinese President Xi Jinping on the sidelines of the Shanghai Cooperation Organisation (SCO) summit in Tianjin, providing an opportunity for further discussions on these matters.

In addition to fertilisers, India is exploring trade opportunities with China in electronics manufacturing, foreign direct investment, and rare earth minerals. The United States has imposed an additional national security tariff of 25% on Indian goods, taking the total duty to 50% from August 27. This tariff, however, does not seem to have significantly impacted the ongoing trade discussions between India and China.

Shipments of these items have already begun, giving temporary relief to Indian farmers and industries. However, so far, there has been no significant progress in easing these export rules, and it remains to be seen how long this relief will last.