‘Boycott China Unrealistic’: India Can Only Cut 30% Chinese Imports

The Confederation of All India Traders (CAIT) that comprises 60 million merchants across the country has embarked on a new campaign, ‘Indian Goods – Our Pride’. The idea is to escalate the boycott of Chinese products and, of course, make them in India. It finalised a list of 500 broad categories and 3,000 products (from toys to fabrics, kitchenware to cosmetics) that can easily be made in India by Indians. The aim: by December 2021, imports of Chinese products worth $13 billion are substituted by local ones.

Think about it. The CAIT’s ambitious desire covers less than a fifth of the imports from China — $70 billion in 2018-19. Experts contend that if the #BoycottChina crusade has to enmesh with the prime minister’s appeal for economic self-reliance and Atma-Nirbhar Bharat, a target to replace 30% of Chinese imports, or a little more than CAIT’s, is in sync with reality. There is no way that the country can get rid of imports from China, not to mention the huge cross-border investment inflows between the two neighbors.

Bilateral economic relations cannot be viewed in a blinkered fashion. While imports may be the visible end, with their ability to evoke emotional patriotic responses, the issue has to be viewed holistically. China sells crucial machinery that adds to domestic manufacturing and exports. These can be replaced over the next 5-10 years. Both the nations have invested heavily in each other in terms of money. One cannot ask the Chinese firms here, and Chinese investors in Indian stock markets, to pack up and leave. Nor can one do the same to the Indian firms in China.

Estimates indicate that a third of the Chinese imports constitute low-tech goods that were either made earlier by Indians, or are still being made but in smaller quantities. These can surely be discouraged, and re-replaced by local products and brands. In addition, such attempts will prove to be a fillip for the hundreds of small and medium firms, which have languished due to the lack of demand. If the MSME segment kicks off, the overall manufacturing sector will get a boost, which will benefit the ‘Make in India’ scheme.

Indian buyers can opt for Indian-made ovens, cookers, artificial jewelry, and idols of Gods, even if they need to pay a bit more. A motivation drive, and policy measures to help the smaller Indian firms, will be the steps in the right direction. As local sales grow, Indians will become competitive. They can emerge as exporters of these products, and battle globally with China. The Research and Information System for Developing Countries (RIS), a New Delhi-based research institute, estimates that there lurks an export potential for 2,700 products.

Ashwani Mahajan, National Co-Convener, Swadeshi Jagaran Manch, agrees, “It is a misnomer that we have to be dependent on Chinese products. Our policy makers have not been sensitive to the issue of helping to build our manufacturing capacity. Driven by price factors and the country’s preferred procurement policy, Indian units have suffered, and now operate at below optimum capacities in the steel and electronics. In chemical manufacturing, the capacity utilisation is only 30-35%.” This can quickly change.

The fact remains that there is ample scope in policy-making to stop the Red Dragon surge. Experts say that WTO rules allow India more room to protect its sectors. For example, India used non-tariff barriers, like quality standards, against 300 Chinese products, compared to the US’ imposition on 6,000 goods imported from China. In the recent past, as China stalled Indians’ entry in the former’s telecom and infrastructure projects, India used the WTO clause of reciprocity to initiate similar action against Chinese companies.

Of course, the crucial question is whether this import substitution needs to be done in one go, or in a calibrated fashion. CAIT feels that it can be achieved by December 2021, at least to some extent. Prabir De, Professor, RIS, thinks that a phased manner may be the best approach. “This will give time to the Indian companies to be ready to produce most products. If we shut down imports now, we will be the sufferers,” he explains. We aren’t sure whether those who were forced to become traders because of the onslaught of Chinese imports will return to manufacturing at such a short notice.

Even if they do, one can be certain that there will be a range of Chinese machinery and intermediates that cannot be made by Indian firms, at last not in the next few years. One cannot underestimate – though one may not wish to flatter China – the role played by the neighbour as key supplier of capital goods, and sophisticated equipment such as medical devices, factory boilers, cooling systems, anti-pollution instruments, and power plant machinery. Not only are the Chinese products cheap – the prices of American and European vendors may be 3-4 times – there are question marks on India’s ability to emerge as a major global player in such sophisticated segments.

One has to be aware that more than 100 Chinese firms have a presence in India. Chinese state-owned companies have bagged huge projects here. These include Sinosteel, Shougang International, Baoshan Iron & Steel, Sany Heavy Industry, Chongqing Lifan Industry, China Dongfang International, and Sino Hydro Corporation. In telecom, three Chinese firms, Xiaomi, Vivo and Oppo have a 50% share of the mobile handset market. (But they are under pressure; Oppo recently cancelled an online launch due to #BoycottChina.)

Indian corporate giants too have ventured into China to sell their goods and services to India and the rest of the world. These include prominent pharma firms such as Dr. Reddy’s Laboratories, Aurobindo Pharma, and Matrix Pharma, and leading IT majors like NIIT, Infosys, TCS, APTECH, Wipro, and Mahindra Satyam. Given such a broad range of cross-border investment inflows, a delicate balance has to be maintained with China. If each country refuses to protect the other’s investments, it can lead to other problems.

Anil Razdan, former power secretary, explains, “We have to take a call on the urgency of investments as we cannot keep China out because of WTO and other global commitments. This is true of projects with global funding too, unless we declare China as a hostile nation.” Thus, a better solution will be to “go easy on taking Chinese investments” until India builds her manufacturing capacity. A longer-term blueprint is more desirable.

In fact, this may be the worst time to take on Chinese investments, or inflows from any other country. “The global economy is faced with great uncertainty amid the pandemic. With mounting pressure on economies this year, economic development on both sides will inevitably suffer huge losses if India and China allow border tensions to escalate,” wrote Liu Xiaoxue, Associate Research fellow, Chinese Academy of Social Sciences, in a recent article. Like it or not, the same is true about economic and business issues.