The tumultuous situation at the LAC following the violent clashes between India and China has finally cast shadows over bilateral trade. These recent events have been followed by increased demands from both the Indian polity and industrialists to reduce imports from China and create a conducive environment for local firms to grow.
It is no secret that India is one of the biggest markets for Chinese businesses outside their own country. India is the seventh-largest export destination for Chinese products. It has become a dumping ground for Chinese goods with imports from China accounting for almost 16% of India’s imports. On the other hand, India’s exports account for just 3.2% of China’s imports. The trade imbalance is substantial and time and again has gone on to demonstrate India’s incapability to produce goods and machinery to meet the needs of its own people. However, the government in recent years has worked hard to ensure exports of Indian rice, sugar, fruits, and pharmaceuticals to China. This has resulted in the trade deficit steadily decreasing for 3 years in a row and moving to a 5 year low at $48.66 billion for FY-20.
However, bilateral trade is expected to reduce even more drastically given the past two months due to the pandemic and the rising cold vibes between the nations. In order to honour the spirit of Local for Vocal and finally hold its ground in the face of Chinese expansionism, several coercive steps have been taken. The Confederation of All India Traders (CAIT) has released a list of 500 categories of Chinese products that it said can be swapped with Made in India goods, intended to bring down Chinese imports to $13 billion from $70 billion. The government has also gone ahead and banned 59 Chinese origin applications. Regulations for Chinese FDI have been tightened, scrutiny of Chinese imports has been increased to 100%, and limiting their steps have been taken to contain their presence in telecom, pharmaceutical, infrastructure, and power sectors. India has really started towards being Atmanirbhar.
From supplying industrial components and raw materials to investments in India’s largest start-ups and technology firms, China has a big stake in India. Chinese smartphone makers have made major investments in India under the “Make in India” program, generating major tax earnings and employment. India imports two-thirds of its active pharmaceutical ingredients and medical equipment from China. Chinese vendors are also deeply entrenched in electronic products and automobile supply chains in India. Telecom and 5G happen to be the latest proof of Chinese imports to India. According to a report published by Brookings India, even if one were to discount the investments from China routed through third-party countries, the total amount of Chinese investment in India has crossed $26 billion (around Rs 1,98,000 crore). It is clear that any adverse announcements forcing Chinese businesses to shut shop in India will add to burdening the Indian economy and increase unemployment rates in India.
This is not to say that Indian majors haven’t benefited from increased anti-China sentiment. These steps are expected to save India $8 Billion in import bills from China with an immediate upside on almost $735 million. These moves have given a boost up to Indian tech companies, who have topped close to 100 Million downloads. Indian OEMs in the Automotive, Solar equipment, and telecom sector see an immediate upside due to increased nationalism, government incentive programs, and technological improvements through collaborations.
All these steps also come with costs, at a time when India’s battered economy is already struggling. It is clear that arbitrary import restrictions or consumer boycotts will be largely self-defeating. The government would be required to not give in to nationalistic calls. These steps can only create a real impact if properly executed with simultaneous encouragement of the local industry. The government has been taking the right steps with an increased focus on MSMEs, Bulk drug parks, encouraging the development of solar modules in India amongst several other steps. India should also move on to make more of its own electronics, APIs, and medical equipment. In order to mitigate the threat of future Chinese economic coercion if relations between the two powers worsen, Atmanirbhar Bharat is the right step.