Taming The Dragon

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Trade figures suggest India is the biggest importer of Chinese consumer goods

Basit Amin Makhdoomi

WHEN PM Modi in his address to the nation gave a clarion call for an “Atmanirbhar Bharat” two weeks ago, a campaign  has been launched by sections of society against the products that we import from China with which India is currently engaged in a stand-off along Line of Actual Control in Ladakh  Sonam Wangchuk, engineer, innovator and the inspiration behind director Vidhu Vinod Chopra’s popular Hindi film ‘Three Idiots’, took to social media to promote the boycott of all products ‘Made in China’.Wangchuk’s video from Ladakh received over 20 lakh views in just two days but he went on to assert that these should be converted into something concrete that would bite the Chinese economy. The million-dollar question that needs an immediate answer is how practical is it to talk about insulating ourselves from the influx of materials from this global trading giant?

Ground Realities

Trade figures suggest that India is the biggest importer of Chinese consumer goods and India imports almost seven times more from China than it exports to it. India has a huge trade deficit with China and that is largest with any country. In 2018-19, India’s exports to China were mere USD 16.7 billion, while imports were USD 70.3 billion, leaving a trade deficit of USD 53.6 billion. It needs to be acknowledged that China’s exports to India account for only 2 per cent of its total exports, so even if Indians boycott all the goods imported from China, it will not make as big an impact on China as to bring it to its knees before India. Data also suggests that China is India’s largest trading partner, but the trade is heavily skewed in favour of China. Thus, initiating a  trade war when Indian manufacturing ability is limited, is not going to favour India. The range of goods that we import from China is massive: consumer durables such as electronic goods, smartphones, industrial goods, vehicles, solar cells, essential pharmaceutical products including tuberculosis and leprosy drugs, antibiotics, and many others. This gives sheer insight into the volume of our dependence on  Chinese products.

In 2017-18, almost 60 per cent of India’s import requirements of electrical and electronic equipment were met by China. In our smartphone industry, out of the five best selling phone brands in India, four are Chinese viz Xiaomi, Vivo, Realme, and Oppo. These four brands combined dominate over 60% of the smartphone market in India. On the other hand, the demand for 30 per cent of India’s automobile components are met from China, and about 90 per cent of the country’s toy market is occupied by the Chinese products. Similarly, 50 % of the demand in the country’s bicycle market is met by imports in which China has a large share. Thus, some of the key sectors of the Indian economy are critically dependent on China.

Talking of Chinese investments in our tech space, investments have seen a massive spike in recent times. A report published by Gateway House, a think tank associated with the Indian Council on Global Relations, estimates $4 billion of Chinese tech investment in Indian startups. The Alibaba Group alone has strategic investments in Big Basket ($250 million), Paytm.com ($400 million), Paytm Mall ($150 million), Zomato ($200 million) and Snapdeal ($700 million). Similarly, another Chinese group, Tencent Holdings has its investment in Indian firms like Byju’s ($50 million), Dream11 ($150 million), Flipkart ($300 million), Hike Messenger ($150 million), Ola ($500 million) and Swiggy ($500 million). Additionally, these Chinese firms are not the sole owner of these platforms, many Indian and non-Chinese investors hold a majority of the control in most of these companies, making it difficult to classify them as Chinese or non-Chinese. These insights negate any immediate ideas of rhetorical boycott calls without acknowledging the associated benefits India reaps from this relationship.

Trade data also goes on to demonstrate that India exports less to China (mainly raw materials) and imports more (mainly electronics and other manufactured goods which are in high demand). Statistics reveal that India’s pharma sector has a critical dependence on Chinese imports used in drug manufacturing. India’s potential to manufacture Hydroxychloroquine (HCQ) which was in great demand recently as a possible cure to COVID-19, greatly depends on the Active Pharmaceutical Ingredients (APIs), or the raw materials used in the manufacture of these medicines or formulations. With China being one of the leading producers and sellers of APIs to the rest of the world, this raises an alarm for us before we start boycotting Chinese products.

Of course, China also aspires for having new markets for its manufactured goods, and India is one of those new markets where its electronic goods, especially smartphones, have found a large market. But, China can have also set its eyes on other emerging markets in other Asian countries and even in Africa. It is also trying to create a market for its goods in Europe.

One step at a time

The rhetorical calls of boycott without working on logic will not buy us our tall claims of self-reliance or Atmanirbhar Bharat, a pragmatic blueprint needs to be put in place. A mechanism of import substitution needs to be worked out by creating such product alternatives which can compete both in quality and cost against the Chinese products. Low R&D expenditure, especially from the private sector, is a key challenge facing the innovation ecosystem in India. The latest R&D Statistics released by the National Science and Technology Management Information System (NSTMIS) of the Department of Science and Technology (DST) show that while R&D expenditure in India tripled in the period from 2004-05 to 2014-15, its size as a percentage of GDP remained at 0.7 per cent. This is very low compared to the 2 per cent and 1.2 per cent spent by China (for 2015) and Brazil (for 2014) respectively. Countries like Israel spend as much as 4.3 per cent of their GDP on R&D This makes it imperative to think about resource allocation and invest in research and development which in turn will equip our industries with the requisite tech & skill to fight this trade battle.

Thirdly, the Foreign Direct Investment (FDI) regulations also need to be further liberalized. India receives only 25 per cent of the FDI that China gets and only 10 per cent of what the USA receives. An increase in the levels of FDI may provide the necessary nudge to our Industrial sector to surge towards better productivity and efficiency.

Way Ahead

Jingoism and hyper-nationalism can never provide a solution to the problems that stare us in our face and hence efforts should be made to resolve regional disputes through dialogue and consultation. This makes it imperative to maintain close exchanges at the highest levels to iron out differences as and when they pop up. Increasing mutual investments and encouraging Indian companies to participate in the China International Import Expo will strengthen the bonds of relations between these two economic giants. We must acknowledge that China has a strategic role to play in India’s growth and COVID-19 taught us that the effects of any battered economy affect us all collectively in a globalised era.

  •  The writer is a lawyer J&K High Court. He can be reached at Makhdoomi13@gmail.com

 

 

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