These days, newspapers are full of stories about small Indian businesses pledging to cut out Chinese imports even at the risk of loss of income. So we have an association of small traders burning Chinese goods at a busy Delhi chowk and pledging that members will no longer stock goods imported from the neighbouring country.
An association of Delhi hotels has now also been persuaded to come forward and say that its members will no longer allow Chinese nationals to book rooms. Many Central ministries have been issuing statements hinting at either stopping sector wise imports from that country or imposing punitive duties to discourage this practice. At least two big vehicle manufacturers have supported the popular sentiment of boycotting Chinese imports, never mind the criticality of supplies from China for parts’ makers who supply to these OEMs.
And in a sign of increasing official aggression over Chinese daring, large consignments of electronic parts, machinery etc – imported from China – have been lying at various Indian ports for the last two days, awaiting detailed checks due to “intelligence” inputs. Concerns over consequent delays and breaks in supply chains across various industries (especially electronics and consumer durables) have been pushed aside and the customs officials seem to following an unwritten writ: make China suffer by holding up goods.
They have obviously not realised that the goods have been paid for and the only sufferers would be Indian companies needing these goods for completing their manufacturing process.
As India wakes up to the need to do something, anything, to punish China for its Galwan misadventure, we seem to be firing on all cylinders but without any comprehensive or coherent policy in place for import substitution or lessening our dependence on Chinese goods. China is India’s second largest trading partner after the USA but accounts for the largest trade deficit. Put simply, this means we import so much more from China than we export to that country, that we run up a huge trade deficit.
A close examination of some historical data shows that imports from China have actually increased substantially since the Modi government came to power in 2014. Data put out by the Commerce Department show that the biggest jump in imports from China was seen in two years of the first term of the Modi government: 2014-15 and in 2017-18. In both these years, imports from China increased by nearly 20 per cent year on year.
In fact, in the last six years, only 2019-20 saw a noticeable decline in Chinese imports into India. Another fact: during the Modi years, imports from China have increased by over Rs 90,000 crore, though their share in India’s entire import basket remained between 13-14 per cent (rising only in the two years when there was a significant jump).
Also, here’s another sobering thought: India does not matter quite as much to China as that country matters to us, in trade terms. The estimated share of exports to India in China’s entire export basket is about 3 per cent.
So two things become clear: One, the jingoism unleashed by the Modi government and small traders against Chinese imports is a little misplaced since a huge surge in imports from China happened during the Modi regime itself.
Two, aggressive lessening of imports from that country – even if it were possible in the short term – is hardly expected to have the same impact as it would have on Indian businesses, who must learn to quickly do without key inputs. As explained earlier, though India’s imports from China fell by a little over 6 per cent in 2019-20, Chinese imports still accounted for nearly 14% of our import basket at Rs 461,524.13 crore.
Another question looms. Why are we importing goods from China which could, logically speaking, be manufactured easily by us within the country?
Data from Commerce Ministry show India imported nearly Rs 45 crore of “agarbatti and other odiferous preparations” from China in 2018-19. Another nearly Rs 66 crore worth of goods classified as “hooks, eyes and eyelets” were imported from China in the same year; nearly Rs 5 crore worth of needles were also brought in.
There is a long list of such small, cheap items we continue to bring from that country. Why these cannot be made in India is perhaps a question best posed to the government, which is now harping on “atmnirbhar’ bharat and the success of its ‘Make-in-India’ initiative. Why we have not been able to make enough and affordable agarbattis in India is a good place to start a discussion on how to strengthen India’s manufacturing prowess.
Then, a statement from the Federation of Indian Export Organisations (FIEO) has shown that while India narrowed its trade deficit with China last year, we actually incurred a deficit with Hong Kong of $5.8 billion in 2019 from a surplus earlier. Exports to Hong Kong in 2019 stood at $11.5 billion, imports were $17.3 billion.
In 2017, we had a trade surplus with that country of $4 billion, said FIEO. “We need to look into the totality of trade with China and Hong Kong. Much dependence on China can be reduced with short to long term plans. India has been able to reduce its import dependence in the mobile sector and the same can be replicated in other sectors of electronics, telecommunication and formulation of specialty in chemicals etc. We need to encourage Indian investments as well as FDI through fiscal incentives in such sectors,” the exporters said.
Time is now ripe for India to frame a long term policy of import substitution and increasing manufacturing competitiveness. Banning Chinese nationals from hotel rooms, asking small traders to boycott Chinese imports, levying high duties on power equipment imports and expecting the pharma and auto industries to cut import dependence overnight won’t work.