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Can India Afford To Boycott China?

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By Waris Itoo and Saira Nikhat Imam

Trade links between the two countries are solid; dieting India’s credence on China won’t be smooth. Bustling a border or defence dispute into a trade would bean an indiscreet action.

The anti-Chinese opinion among Indian masses that led to calls of boycotting Chinese products was initiated following the border stand-off across the LAC. This national perception has incarnated into various government steps that have been vented in recent times to curb Chinese products being imported to India and restrains on technology and finances routing from China to India.

India China
Representative Image.

India needs to revise the drawing board and consider the best “ingenious tools” of power available, rather than only considering the armed option. The government may well find non-military tools that are also less risky. One such opportunity available is diplomacy which is an equally imperative instrument of a nation’s power.

Manipulating the current epidemic opposition to China, we must emplane on a diplomatic offensive to create an international impression in its support regarding the border stand-off. This diplomatic offensive involving different profound agencies like MEA, persons of international standing, business leaders, etc., can accomplish a great deal in reliable International opinion about India’s peaceful and harmonious intentions vis-à-vis China’s imperial desire.

India also has a preference and analogy that we should rejuvenate another instrument of soft power approach that we had engaged in the past, through the cultivation of foreign leaders to draw their specific attention to China’s intrusive protocols.

Retaliating the Chinese jump to buy influence will not be easy, but India’s involvement with the Non-Aligned Movement (NAM) should prove expensive in this respect. The liaison with NAM needs to be replenished.

Previously also we had a programme of helping countries across Asia and Africa through a well-designed technical aid programme which possibly still exists but may need to be enhanced. Such techniques bring permanent links between India and these countries and help contrast India’s “untied aid” with that of countries such as China, whose aims are political and economic invasion.

India And China’s Trade; China’s Control

As India and China are the two fastest-growing economies, the possibility of an economic rapprochement among them to seize the synergies of their development is interesting. Both economies have witnessed transactions in their economic policies during the last two decades.

The dynamics of bilateral trade between India and China has grown four-fold in the past decade, but the trade was tilted towards Chinese pre-eminence, which has got India an unfavourable balance of trade with its counterpart.

In 2013, China out-stripped the U.A.E. to become India’s biggest trading partner. Presently, China is now India’s third top destination of exports after the U.S.A. and U.A.E.

According to (UNTCAD), China exported around $70 billion in 2018–2019, which accounts for a mere 3% of China’s export to India and 16% of our imports. That resulted in the imbalance continuously widening year after year to reach a $63 billion trade deficit with China and constitutes more than 40% of the total trade deficit.

Trade
Representative Image.

The expansion of trade paucity with China could be attributed to two factors: a precarious box of commodities that we export to China and market barriers for most of our agricultural products and the sectors we are competitive in, for example, IT, pharmaceuticals, etc.

Our predominant exports have consisted of electric transformers, iron and copper ores, cotton, diamonds/gems, vegetable fats and petroleum oils. However, these raw material-based commodities have been overshadowed by Chinese exports of machinery, telecom, organic chemicals and fertilisers over time.

COVID-19 opened another dimension of dependence — India’s imports from China have risen in June and July 2020 by about 7.2%, whereas exports to China have contracted by 1.4% despite the demand slowdown due to COVID-19. The primary reason for increased import is the immediate need for medical supplies like masks, PPE kits and other emergency equipment’s.

The influx of Chinese capital has been beneficial to both countries and the broader relationship, emerging as a potential factor of stability. According to Invest India, there are more than 800 Chinese companies in India’s domestic market. In addition, there are almost 75 manufacturing propensities for consumer appliances, smartphones, construction equipment, etc.

Fosun International Limited, Oppo, Vivo are some of the largest Chinese brands and manufacturers in India. Moreover, two-thirds of Indian unicorn start-ups had huge investments by Chinese tech investors. It is estimated that $4 billion in 18 out of 30 Indian unicorn start-ups are funded by Chinese giants. These include Flipkart, Big Basket, Paytm, Ola and BYJU’s, etc.

On the other hand, China is the largest trade partner of almost all South Asian and other Developed and Developing Nations. India has only a small share in its imports and exports. So boycotting China will hurt the interests of millions of middle-class citizens and their businesses and experts from various sectors say this calculated approach to boycotting Chinese goods will not hurt China much.

Sectors Dependent On China

India depends on China to supply a wide range of products from simplest to most sophisticated like pharmaceutical and electronic products. Chinese domination in the imports of telecom and electronic and pharmaceutical intermediates (APIs) is particularly perturbing given the criticality of these sectors for the Indian economy.

After the Digital India programme started in 2015, Chinese domination in the imports of telecom and electronics has increased manifold over the past few years. About two-thirds of the total API requirement and about 75% of the APIs used in the formulations of NLEM (National List of Essential Medicines) are sourced from China.

Owing to its dominance in APIs/key starting material (KSMs) and Intermediates, the Chinese bulk pharmaceutical products also have a competitive edge in our domestic sector market. In 2019–2020 more than 83% of mobile phones and 90% of TV sets imported were from China alone.

Indian Economy, Business And Finance
Representative Image. (Photo by Hemant Mishra/Mint via Getty Images)

Imports from China dominate the National Solar Mission. Almost 84% of solar cells and modules requirement in the country is met through imports from China because of its competitive pricing compared to domestic manufactures.

The giant Chinese Solar industry has been in its apogee since last decade while India failed to live up to its promises of emerging as the solar superpower since the Paris agreement. The same is the case with chemicals and agrochemicals and infrastructure as India imports high amounts of raw materials from China, depending between 30%–50% on the product portfolio.

$1 billion rail projects were won in a joint venture (JV) with Chinese players in the past 3 or 4 years. The key reasons for Indian firms to enter in JVs are technical expertise and a means to reduce competition through partnership and incrementally, more than $10 billion tenders are in the pipeline in metro rails in different states.

The government is now emphasising “Atmanirbhar” or “self-reliance”, which focuses on five things: economy, infrastructure, system, vibrant demography and demand.

This national self-sufficiency reminds me of J M Keynes in the Great Depression; Science, Knowledge and Ideas and Travel and Hospitality are the things that should in their nature be international. So such a move is neither practically feasible to obtain desired results nor in our national interest. It is nearly impossible to keep China out of our daily lives.

How China’s Rising Imports Impacted Indian Domestic Industries

In the 2018 July report of the Standing Committee on commerce titled Impact of Chinese Goods on Indian Industries, the key observations and recommendations of the committee highlights many issues. But the two most affected domestic businesses were MSMEs and the impact of Chinese goods on employment and revenue generation.

Workers in textile factory
Representative Image.

The committee found that several industries that have been adversely affected by the import of Chinese goods are labour intensive, thus, may trigger unemployment. For example, the country’s textile industry is facing challenges mainly because of Chinese imports of artificial fabrics (Polyester, Blends and Viscose). Cheap imports have resulted in a 40% closure of power looms in Surat and Bhiwandi.

The committee also noted that the then GST on synthetic fibres of 18% had increased the import of similar fabrics from China. Further, India has FTAs with Least Developed Countries such as Bangladesh. China’s fabric is manufactured into garments in Bangladesh and imported at cheap rates into India.

The committee noted that poor quality Chinese products dominate the unorganised retail sector, subsequently crowding out the domestic industry. This sector comprises domestic MSMEs, producing more expensive but better-quality products.

The stainless-steel industry is a case in point where several MSMEs have had to close down, particularly manufacturers of stainless-steel grades of the 200 series due to Chinese imports.

Time To Rethink

India can increase tariffs for Most-favoured-nation (MFN) up to the bound rates. Effective tariffs in India are less than 10%, whereas WTO bound rates are 40%. India can also importune the national security clause in the WTO rules to invoke specific duty only on imports from China and could also restrict market access, which does not attract much attention and is frequently used by some countries, including China.

Moreover, the MFN clause doesn’t apply to all services, which means there would be a selective and gradual phasing out of Chinese imports and is indeed possible.

FTA should be revived and retaliatory action may harm our exports as well. But the loss in exports of India to China can be nullified by working out strategic trade partnerships with countries harbouring anti-China sentiments, like the U.S., Australia, parts of Europe, Japan, Taiwan, and others.

This is the most opportune time to draw a roadmap for manufacturing intermediate goods in India in the medium to long term. The “plug and play” facility should be provided to investors on MSMEs so that they can kick-start production quickly.

Featured Image via Wikimedia Commons
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