If we buy far more from a country than we sell it, are we losing?

India buys far more from China than it sells back, and the gap has run to the better part of a hundred billion dollars in a year. Put that way, it sounds like a scoreboard, and India looks like it is losing badly.

What any two countries buy from each other, though, tells you almost nothing on its own. A customer runs a heavy deficit with his barber, who buys nothing from him at all, and he runs a large surplus with his employer, whose salary covers the rest. Nobody thinks the barber is winning. Countries work the same way. China spends what it earns from India elsewhere, on Australian ore, German machines, Gulf oil, and those countries buy from India in turn. Trade runs in triangles, and no two partners have any reason to balance against each other.

The money itself does not vanish either. A Chinese factory has no use for rupees, so the Indian importer takes his rupees to a bank and buys dollars with them. That swap only happens if somebody, somewhere, is willing to do the opposite: hand over dollars and take rupees instead.

Why would anyone want rupees? Because a rupee buys only Indian things. Whoever accepts one must be planning to buy something India makes, a service India sells, or a piece of India itself, such as shares in a company, government bonds, or land for a factory. A rupee can do nothing else.

So the money comes back, as an order for Indian goods, as payment for an Indian service, or as investment in India. That gives the plainest way to read the whole picture. A deficit on trade is a surplus on investment. Count everything India sells the world, and if it still buys more than it sells, the difference is exactly what foreigners spent buying a piece of India instead. The two are one fact, counted twice.

For a country short of capital, which India has always been, that counted fact is the welcome side of the ledger. Foreign money arriving to build a factory in Chennai is the very thing that half of India’s economic policy has spent thirty years trying to attract.

So is India losing? The bilateral number cannot answer that question either way. It ignores the triangles, and it counts money arriving to build Indian factories as a minus sign. The number is too crude to carry any conclusion. The real question is different: does India depend too heavily on a single supplier, China, for imports it cannot easily source elsewhere, from a neighbour that could turn hostile?