In one way reminiscent of Mahatma Gandhi’s non-violent resistance to the British Raj, where Indians under occupa­tion forewent Manchester-sewn textiles in favour of “homespun” cloth, the difference between then and now, of course, is that China is not an occupying force here and no more do we rely on the “hoemespun cloth”.

In this article, we have attempted to provide you the most objective analysis of the issue.

After the Galwan Valley skirmish, the popular idea resonating in Indian streets is that Indians should boycott Chinese goods and thus “teach China a lesson”. India is considering a range of economic measures aimed at Chinese firms amid the border tensions. The Make in India movement is “gaining ground in the air” amid rising anti-Chinese sentiment but with raised eyebrows.

The move to ban 59 Chinese apps may be just the start. Many projects have started terminating their contracts with the Chinese.

Trade with China: A reality check

China accounts for a sizable portion of India’s top imports, especially where intermediate products or components and raw materials are concerned.

The Hindi-Chini buy buy

• A third of machinery and almost two-fifths of organic chemicals that India purchases from the world come from China.
• Automotive parts and fertilizers are other items where China’s share in India’s import is more than 25 per cent.
• Several of these products are used by Indian manufacturers in the production of finished goods, thus thoroughly integrating China in India’s manufacturing supply chain.
• For instance India sources close to 90 per cent of certain mobile phone parts from China.

India’s export to China

• Even as an export market, China is a major partner for India. At $15.5 billion, it is the third-largest destination for Indian shipments.
• At the same time, India only accounts for a little over two percent of China’s total exports, according to the Federation of Indian Export Organisation (FIEO).

The Boycott Movement: Swadeshi 2.0

Blame it on the pandemic and the border dispute, but the result is the same: some Indian businesses are boycotting China.

The government is now asking Indian e-commerce companies like Flipkart and Amazon India to label country of origin for all products sold on its websites.

The “boycott China” movement may not be an official boycott, but it is designed to limit the number of goods China sells to India in hopes India can pick up the slack.

The digital strike

• The govt banned 59 Chinese mobile applications, including top social media platforms such as TikTok, Helo and WeChat.
• India accounts for 0.03% of TikTok’s parent company ByteDance’s global revenue.
• Thus, banning these apps will make little to no economic impact on China in the short term.
• On the other hand, this ban might have stymied China’s top tech firms in what many consider to be the world’s largest, untapped digital market.
• Furthermore, this ban may provide a model for other countries that have expressed concerns about the pervasiveness of apps like TikTok and the privacy threat it poses concerning their citizens’ data.

Reasons why the #Boycott_China is an ill-advised move:

1) Trade deficits are not necessarily bad

• Trade deficits/surpluses are just accounting exercises and having a trade deficit against a country doesn’t make the domestic economy weaker or worse off.
• Example: If one looks at the top 25 countries with whom India trades, it has a trade surplus with the US, the UK and the Netherlands. But this does not make Indian economy better than them.

What does this deficit indicate?

• Both Indian consumers and Chinese producers are gainers through trading.
• One gets the market other cheap prices. Thus, both are better off than what they would have been without trade.

So, having a trade deficit is good?

• Of course NOT. Running persistent trade deficits across all countries raises two main issues.
• One, availability of foreign exchange reserves to “buy” the imports.
• Today, India has more than $500 billion of forex — good enough to cover imports for 12 months.
• Two, lack of domestic capacity to produce most efficiently.

2) Will hurt the Indian poor the most

• This is because the poor are more price-sensitive.
• For instance, if Chinese TVs were replaced by either costlier Indian TVs or less efficient ones, unlike poor, richer Indians may buy the costlier option.
• Similarly, the Chinese products that are in India are already paid for. By banning their sale or avoiding them, Indians will be hurting fellow Indian retailers.
• Again, this would hit poorest retailers more due to inability to cope with the unexpected losses.

3) Will punish Indian producers and exporters

• Several businesses in India import intermediate goods and raw materials, which, in turn, are used to create final goods — both for the domestic Indian market as well as the global market (as Indian exports).
• An overwhelming proportion of Chinese imports are in the form of intermediate goods such as electrical machinery, nuclear reactors, fertilizers, optical and photographic measuring equipment organic chemicals etc.
• Such imports are used to produce final goods which are then either sold in India or exported.
• A blanket ban on Chinese imports will hurt all these businesses at a time when they are already struggling to survive, apart from hitting India’s ability to produce finished goods.

Most crucial: The Pharma sector could be worst hit

• For instance, of the nearly $3.6 billion worth of ingredients that Indian drug-makers import to manufacture several essential medicines, China catered to around 68 per cent.
• India is considered one of the largest pharma industries in the world and accounts for a considerable portion of imports of finished formulations by other large economies like the US.
• While pharma consignments from China have unofficially been stopped at ports in India, and are expected to be cleared after thorough checks,
• A ban could create shortages of medicines both for India’s domestic and export markets.

4) Will barely hurt China

• According to the United Nations Conference on Trade and Development (UNCTAD) data for 2018, 15.3% of India’s imports are from China, and 5.1% of India’s exports go to China.
• More importantly, China’s imports from India are less than 1% of its total imports.
• The point is that if India and China stop trading then — on the face of it — China would lose only 3% of its exports and less than 1% of its imports.
• However, India will lose 5% of its exports and 14% of its imports. On the whole, it is much easier for China to replace India than for India to replace China.

5) Chinese money funds Indian unicorns

• India and China have also become increasingly integrated in recent years.
• Chinese money, for instance, has penetrated India’s technology sector, with companies like Alibaba and Tencent strategically pumping in billions of dollars into Indian startups such as Zomato, Paytm, Big Basket and Ola.
• This has led to Chinese giants deeply “embedding themselves” in India’s socio-economic and technology ecosystem.

6) India will lose policy credibility

• It has also been suggested that India should renege on existing contracts with China.
• This can be detrimental to India’s effort to attract foreign investment.
• As one of the first things, an investor — especially foreign — tracks is the policy credibility and certainty.
• If policies can be changed overnight or if the government itself reneges on contracts, the investor will either not investor demand higher returns for the increased risk.

Raising tariffs is mutually assured destruction

• Many argue that India should just slap higher import duties on Chinese goods or apply prohibitive tariffs on final goods.
• By doing this, firstly India would be violating rules of the World Trade Organization.
• Secondly, it would make China and many others reciprocate in the same way.

Equating border dispute with trade is no panacea

• The first thing to understand is that turning a border dispute into a trade war is unlikely to solve the border dispute.
• Worse, given India and China’s position in both global trades as well as relative to each other, this trade war will hurt India far more than China.
• Again, these measures will be most poorly timed since the Indian economy is already at its weakest point ever — facing a sharp GDP contraction.

Are there any alternatives in this situation?

• The decision to boycott non-essential products made in China can be left to the individuals.
• However, trade-related measures like raising duties on cheaper raw materials imported from China would be better than an outright embargo.
• This would still allow access to crucial ingredients in the short-term while India looks to build self-reliance or maybe switch to alternate trade partners.
• It would be better to maybe raise duties on cheaper raw materials instead of going in for a blanket ban.

What are the alternatives?

• Countries like the US, Vietnam, Japan, Mexico and certain European countries could be tapped as alternate import sources for some critical electronic, vehicular and pharmaceutical components as well.
• It is likely that the costs of the raw materials from these alternate sources will be higher and may get passed on to consumers if the manufacturers cannot absorb them.
• India will need to look into the totality of its trade with China and Hong Kong and implement certain short- to long-term plans to reduce its dependence on them, according to FIEO.

Way forward

• In the long term, under the banner of self-reliance, India must develop its domestic capabilities and acquire a higher share of global trade by raising its competitiveness.
• But no country is completely self-sufficient and that is why trade is such a fantastic idea.
• It allows countries to specialize in what they can do most efficiently and export that good while importing whatever some other country does more efficiently.
• The government’s “Atmanirbhar” focus is expected to help ministries handhold industries where self-reliance needs to be built.
• For the long run, a more effective strategy needs to be built to provide an ecosystem that addresses the cost disability of Indian manufacturing leading to such imports.

Hence, improving domestic capacities and becoming globally competitive is the way forward.

Conclusion

A blanket ban on Chinese imports will hurt all these businesses at a time when they are already struggling to survive, apart from hitting India’s ability to produce finished goods.

Once the dust settles, they would refrain from escalating a trade war that has the potential to hurt both. Demand for raw material and Chinese goods will go up as the Indian economy revives and it is not in either country’s interest to rock the boat.

However, the limited period ban reflects sentiment and the determination for self-reliance. It would be an overstatement to call it a popularist movement.

We would love to see you attempting these questions. Post your answer snaps in the comment box.

Practice question:

Q. India’s quest for self-reliance is still a distant dream. Critically comment in light of the popular sentiment against the Chinese imports in India.

Q.“Curbing Chinese imports to India will do more harm than any good”. Analyse.

References:

https://www.civilsdaily.com/news/will-banning-chinese-imports-hurt-indias-exports/

https://www.nationalheraldindia.com/opinion/can-india-afford-to-ban-chinese-products-a-trade-war-is-undesirable-in-times-of-covid-19-pandemic

https://www.forbes.com/sites/kenrapoza/2020/07/10/india-goes-all-in-on-boycott-china/#24f045db6e19

https://scroll.in/article/965167/sino-satyagraha-can-india-boycott-china-as-a-response-to-the-ladakh-attack