India's Dependence on China and Athmanirbharata
Indians are naturally angry with China since the border disputes and recent galwan valley attack tensions also who have raised their fourth objection to declaring Masood Azhar as a global terrorist.
Amid border clashes, calls for boycotting Chinese products have intensified. While India relies heavily on imports from China, a much smaller portion of China’s imports are from India. India’s unicorns are also heavily dependent on investments from China. An economic boycott seems infeasible.
Such a move is neither practically feasible in order to obtain the desired result, nor will it be in our national interest to do so. Let us examine the feasibility angle first.
India is the biggest importer of Chinese consumer goods and the trade deficit of India with China is one of the biggest between two significant trading partners. India imports almost seven times more from China than it exports to it. The range of goods that we import from China is massive: consumer durables such as electronic products, mobile phones, plastic items, industrial goods, vehicles, solar cells, essential pharmaceutical products, including tuberculosis and leprosy drugs, antibiotics, among many others.
One-way traffic
In FY19, 5.1% of India’s exports were destined for China, while only 3% of China’s came to India. Also, 13.7% of India’s imports were from China, while only 0.9% of China’s were from India.
Top partner
Imports from China accounted for over 14% of India’s total imports in FY20 (until Feb.), the highest share among all the nations. Exports to China accounted for over 5% of India’s exports, the third highest.
High dependence
The chart depicts the imported products for which India depends on China the most. For instance, 76.3% of all antibiotics imported by India are from China. India is heavily dependent on China for electronics and pharmaceutical products.
Start-up story
Many Indian unicorns (start-ups with valuation of over $1 billion) have a Chinese investor. The chart depicts the estimated investment by Chinese companies in select start-ups.
The mobile phone cannot be hidden from our eyes from morning to night. If the smartphone is barely visible, but hang, if the hand sliding is cracked - the whole life is in a state of fragility. More than 90% of our smartphones, which are nowhere near as good as ever, are based in China. Is that the way to grab smartphones and boycott Chinese products on social media?
India is a huge market for China economically. China, which is constantly trying to increase its exports from its country, has never been willing to lose its smartphone lovers, Indian consumers. Those commodities have engulfed us so much that there is no way to live without China's products. While most of the things we love and use are Chinese products, we must abandon our resolve to exclude them from our way of life!
China based smartphone maker Oppo is the main sponsor of the Indian cricket team, which is growing out of fan favorites. Kohli, Dhoni, Rahul, Jadeja, Pandya, etc .. Oppo is also known for its jersey. 1,079 Crore Sponsorship up to 2022, also most of our Bollywood celebrities are brand ambassadors of Chinese companies, with the proprietary right-to-work campaign, increasing sales volume. Vivo, Lenovo and MI smartphones also attract customers by offering sophisticated options at a very low cost. Some of the Samsung and iPhone models, based out of China, are also manufactured in China.
Although the big companies shouted 'Make in India', they came here and found a home; The only thing that happens here is the ready-to-assemble function. The entire chip, processor, display, battery, casing, memory card, etc that make up the entire smartphone, are all made in China. It produces and exports electronic equipment at the lowest cost in the entire world. Many of the products manufactured in India are based on Chinese equipment. How, then, to boycott Chinese products?
It is our responsibility to increase the domestic product, buy the domestic products and strengthen the domestic market. According to statistics from some websites, China accounts for about 24% of the country's total imports, including smartphones. China's products have grown in India by leaving ready-to-market products for less than raw materials.
The solar panel, which is widely used as an environmentally friendly way, will cost twice as much if it is imported from countries other than China, such as chemicals, fertilizers, children's toys, gift or display items used in information technology. For such inevitable and economic reasons, China has relied on almost ready goods. Imports from China in 2020 increased from 2014, with huge differences in the amount of imports from India to China and exports there. India's trade deficit is estimated to be ₹ 3.54 trillion as imports rise. The quantity that India imports from China is five times the value of goods that China receives from India.
Chinese goods are cheaper because of government subsidies and cheaper labor. Those items are cheaper than locally produced domestic products. Indians are also getting quality products at affordable prices. E-market is such a louder product. Brands that have only appeared online have now opened stores and service centers in major cities across the country. While this growth is the source of job creation in the country, it is the manufacturing sector that is creating millions of jobs with economic growth.
Sectoral Dependence on China
Automobiles
Over a quarter of total import content is from China with the country being a key supplier of sub-components used in engines, electrical/electronics, alloy wheels, tyres, etc. It would be difficult to replace Chinese suppliers in certain segments like electrical and semi-conductors as the required scale and skill isn’t available at present. The government should focus on enabling a p policy framework to increase localisation of imported content. Consequently, once scale has been achieved, globalisation should be pursued.
Consumer Durables
Chinese brands in goods such as televisions and mobiles have strong presence in Indian markets while they’re looking to increase their presence in air-conditioner, refrigerator and washing machine segments. Supply chain dependence on China for Indian brands is also high. It would be difficult to replace Chinese suppliers in critical components like compressors, LED chips, motors , mobile displays, etc. 90% of Havells India Ltd.’s manufacturing is in-house (may be dependent on some intermediary goods from China). For other companies, in-house manufacturing stands at 20-60%.
Telecom
Telecom companies are dependent on network equipment providers like Huawei and ZTE for network access, which includes front-end telecom sites as well as backhaul network. Out of 22 circles, Bharti Airtel Ltd. and Vodafone Idea Ltd. use Huawei telecom equipment in around three and seven circles, respectively. They both incur an annual Rs 100-200 billion annual capex in India toward adding access sites and improving backhaul—transport and core capacity. China services three-quarters of handset demand in India and is deeply entrenched in the global smartphone supply chain. Any disruption in Chinese products may have a major impact on 5G adoption in India.
Pharmaceuticals
Dependency on China for key starting materials is at 60-70%. A ban on imports from China could lead to supply chain disruption in the Indian pharma industry. Due to economy of scale, raw materials procured from China are estimated at 20-30% cheaper than those manufactured domestically. Meaningful investment for setting up facilities in India to replace Chinese supply would be needed, which requires time as well as regulatory approvals.
Chemicals
Raw material imports from China for Indian agrochemical industry ranges between 10-50% depending on the product portfolio. Over the past three to four years, Indian agrochemical players are trying to diversify their sourcing requirement—identifying other countries to source from. The specialty chemical sector has relatively lower dependency on China for raw material.
E-Commerce
Chinese companies have high investment exposure to some key startups in India. With pre-screening of Chinese investments in India, some Indian tech startups could face a supply crunch in funds from new as well as existing investors.
Utilities
India is highly dependent on Chinese solar modules for construction of solar capacities. 80% of module requirement is met from China. Any decision to curb imports for existing projects under construction is likely to result in tariff revisions (pass-through on costs). Certain thermal plants, too, have Chinese equipment suppliers.
Agriculture
India's second largest agriculture producer after China even in exporting various agriculture products. But India is dependent more than 80% on China in cheap agrochemical like pesticides, insecticide ,agro equipments and agro machineries. Also India's most of agriculture products have consumers in China.
Yoga & Sports
Indians are becoming increasingly interested in yoga, and the number of yoga and yoga centers in schools has become a hobby. As a result, there is a demand for yoga mats. China is supplying yoga mats with a warranty and at a lower cost. Domestic mats made from materials such as PVC and rubber are rare. China-made mats are available at any store or online. China is still the source of sports and fitness related accessories.
Batteries and electric powered toys are being imported, ranging from toys for a three-month-old child. The festival, decorative items for special occasions, painted LED bulbs, plastic covers, .. everything you need is available from China. There is a separate market for major brands in the country, such as the iPhone Mobile, Reebok, Nike, and any other global brand. These bazaars are louder than other markets. So how is China boycotting products?
China's products are so Favourite in India
The basic reason for the popularity of Chinese products in India is the low price of products. There are two basic reasons behind the low price of Chinese products-
1. The cost of production is China is low due to the availability of cheap labour force.
2.The manufacturing sector in China gets a subsidy from the government which reduces the cost of production of the goods.
3. Chinese manufacturers produce a huge quantity of the goods which reduces the cost of per unit(law of “Economies of scale” is applicable here)
The cost of production of Indian manufacturers is high due to costly raw material, the old technique of production, higher fixed cost. Due to the higher cost of production Indian products cannot compete with Chinese products in India and at the international level.
Indian sector is most affected by China?
The toy industry of India is badly affected by cheap Chinese imports. The cost of Chinese toys is so low that any Indian company is unable to compete with China. Last year only 20% of the Indian toy market is captured by the Indian companies while the rest of the 80% market is captured by the Chinese and Italian companies.
According to a study by ASSOCHAM, 60% of Indian toy-making companies have been closed in the last 5 years and 20% are on the verge of closure. China has broken the shoulders of the Indian electronic industry by dumping cheap electronic items (lightings used on the Diwali festival is the hot example of the same)
China-based vendors continue to strengthen their grip in the Indian Smartphone market. In the first quarter of 2017, China-based vendors captured 51.4 percent share of the smartphone shipments in India with 16.9 percent sequential growth and impressive 142.6 percent growth over the same period last year. In contrast, the share of homegrown vendors dropped to 8.5% in the Q1 2019 from 40.5 percent in Q1 2014.(A shop in India filled with made in China products)
Can India stop supply of Chinese products in the Indian Market?
The answer is no; because as per the rules made by the World Trade Organisation, it is not possible to impose a full ban on imports from any country even if there are no diplomatic, regional, and trade relations with that country.
But the government of India can ban some Chinese products on the basis of health and security issues. Commerce and Industry Minister replied in the Lok Sabha that the government of India had banned Chinese mobiles that don’t have an IMEI number. China has also banned Indian milk products on the basis of serious health issues.
India can do.!
India can impose an anti-dumping duty and countervailing duty on the cheap Chinese products like electronic items and toys. After the imposition of these two duties the prices of Chinese products increase in the Indian market, hence Indian manufacturers will have the chance to produce these products on Indian soil which will generate employment in India.
Impacts of the ban on Chinese products in India
It is a well-known fact that the Indian market is a price-sensitive market. Here a company has to keep the price low to penetrate the market. Indian consumers are more concerned about the price of the products not the quality of the products.
So if Chinese products are banned/boycotted in India, it can raise the inflation rate in India because Indian products are costlier as compare to Chinese products. The people of the lower-income groups in India will suffer a lot because they will not be able to purchase costly Indian products.
So before taking any decision of banning/boycotting of Chinese products; the government of India must remember that China sends just 2% of its total export to India while India sends 8% of its total export to China. Hence Government of India needs to make a rational decision not the emotional one on this matter.
What’s National interest?
The important thing here is to distinguish what is in India’s national interest. If we define our national interest as the greatest good (higher income) for the greatest number of people, then import substitution would just not work. Imported products allows consumers from all income levels the ability to consume these products at lower prices and retailers to maximise on their sales.
How do you respond to the Chinese actions in the UN, then? It is a political problem and largely needs a political resolution. If we were to impose trade sanctions against each country that has mildly annoyed India in the geopolitical realm, we would be left with no one to trade with.
The US has traditionally given monetary aid to Pakistan despite Pakistan’s unwillingness to curb home grown terrorism. Can we afford to not trade with the US? Saudi Arabia and other middle Eastern economies fund Pakistan’s terrorism directly or indirectly. Can we afford to stop importing oil from these countries?
Harming one’s own citizen’s in order to extract revenge on another country seems to be an ill-advised move. Each citizen can take a call on what they want to buy or not. If Chinese made plastic diyas during Deepavali is not to your liking, don’t purchase it. But, that’s no reason to call for a universal boycott on Chinese imports.
Finally, is this dependence on China for imports good? Perhaps not. As of now, we do not have a comparative advantage in producing the goods that we import from China. However, with the right policies, we can produce some of these items or contribute a greater amount in the global production value chain. For that, we need to improve our productivity by using other countries low cost technologies like China and cease the economy, free up labour laws, reform land acquisition policies, fix our credit system, and so on.
Investment, industrial production and employment growth declined during the 2018/19 from the 2014 the year in which the "Make in India" industrial policy initiative was inaugurated.
Boycotting or barring Chinese exports and investment could exacerbate India's falling economic fortunes that have been made worse by COVID-19. Restricting Chinese exports would raise the prices of consumer goods, particularly those of smartphones and other electronic products which the "Made in China" ones dominated the Indian market. Barring Chinese investment would hurt India's technology and innovation ambition because it accounted for the majority of the country's technology startup enterprises.
Furthermore, the disputed territory is of little economic and geopolitical values to either country and probably planted by the British to ensure perpetual conflict between China and India, thus keeping their economies underdeveloped. Both share a common history, being economic and geopolitical powers before being colonized by Britain. Together, they accounted for over 55 percent of global GDP in the 1700s. There is no reason to believe that they could not regain that status with the "right" policies.
The two countries' large populations are hardworking, enterprising and value education and richly endowed with natural resources. Cooperation in exploiting these sources of economic growth would accelerate and sustain India's and China's long-term economic growth and stability. Investing in job training, for example, could make Modi's industrial policy a reality sooner rather than later. China is climbing the value-added manufacturing ladder and could channel lower-end manufacturing to India.
Taking the debate to its logical conclusion, India and China should and must live up to their obligations as members of a number of international organizations, cooperating with instead of against each other.
