Despite Protectionist Rhetoric, Chinese Imports to India Remain Strong

While right-wing trade groups that support the ruling NDA government have enthusiastically campaigned for a boycott of Chinese products, demonetisation and the hasty roll-out of GST might have even caused a bump in imports.

New Delhi: Even as the Rashtriya Swayamsevak Sangh (RSS) and its associated outfits like the Swadeshi Jagaran Manch (SJM) ratchet up rhetoric against the use of Chinese goods, India’s imports from China remain strong.

In fact, it is possible that recent economic decisions taken by the Narendra Modi government – such as demonetisation and other measures such as the hasty roll-out of the Goods and Services Tax (GST) regime – have disrupted domestic industrial production (especially in the informal sector) and created additional demand for Chinese imports.

China’s share in India’s total imports during the first five months of the current fiscal (April-August) stood at 16.77%, up 5.2% from the last fiscal, a trend that presages robust yearly growth.

India’s total imports in 2016-17 are estimated at $384.35 billion, out of which goods worth $61.28 billion came from China. Meanwhile, the country’s cumulative merchandise imports during April-August 2017-18 are pegged at $182.30 billion, out of this goods worth $30.58 billion have been sourced from China, trade data show.

When compared with 2014-15, the increase in China’s share in 2017-18 is more pronounced. In 2014-15, China’s share in India’s imports was just 13.48%.

China’s share in India’s imports had seen a marginal dip in 2016-17.

The Sangh parivar has traditionally advocated a policy of economic assault on China by encouraging Indians to shun the use of Chinese goods.

During the recent Doklam stand-off between Indian and Chinese troops, the SJM launched a campaign to boycott Chinese goods. In a recent interview to the Organiser, SJM national vice-president Satish Kumar claimed that 87 lakh people across the country had pledged to boycott Chinese goods.

A similar campaign was launched by the Sangh parivar against Chinese goods ahead of Diwali last year. In the past, RSS chief Mohan Bhagwat has made calls for boycotting Chinese goods.

In his Vijay Dashami speech in 2014, which was also telecast on Doordarshan, Bhagwat said, “We speak about self-dependence and standing up to China. The new government seems to be standing up to it. But where will the government draw strength from if we do not stop buying things from China?”

Speaking to the media on the eve of the first anniversary of demonetisation, former Prime Minister Manmohan Singh termed demonetisation as a disaster and trashed GST by calling it tax terrorism. Singh said India’s imports from China in the first half of the fiscal (April-September) rose 23% to Rs 2.41 lakh crore, thanks largely to demonetisation and GST. “These twin blows damaged India’s MSME sector and our businesses had to turn to Chinese imports at the cost of Indian jobs,” the former prime minister said.

Chinese imports to India recorded a 33% jump in the April-June quarter over the same period last year. On November 8 last year, Modi announced the scrapping of Rs 1000 and Rs 500 notes, which together accounted for 86% of the total value of currency in circulation in the country at the time. This triggered a severe cash crunch, hitting hard micro, small and medium enterprises (MSME) sector which contribute nearly half of the country’s manufacturing output.

Trend in imports from China

Year India’s total imports ($bn) Imports from China ($bn) % share of China in India’s total imports
2014-15 448.03 60.41 13.48
2015-16                        381.00 61.70 16.19
2016-17 384.35 61.28 15.94
2017-18 (up to August) 182.30 30.58 16.77

Source: Commerce ministry

India’s exports from labour-intensive sectors like textiles, leather and gems and jewellery too were adversely affected due to high presence of the SME sector in these areas.

The GST, which was implemented by the government in haste and without preparations on July 1 this year, brought more troubles for the MSME sector, hitting industrial production.

As a consequence, exports from labour-intensive sector have suffered. In October, exports of readymade garments shrunk by 39% to $829 million from $1,364 million a year ago. The gems and jewellery sector saw its exports contract by 24.51% to $3308 million in the month under review from $4,382 million a year ago.

Exports of leather and leather goods have shrunk by nearly 10% in October.

Exporters are facing a severe cash-flow problem due to delayed refund of taxes paid on inputs. Garment exporters recently told Parliament’s standing committee on commerce that they are yet to see any benefit from the GST, with no reduction in input costs. They expressed fear that exports shipments could dip in the globally competitive market. October trade data show their fear was genuine.

GST compliance has strained both small businesses’ time and financial resources. “The overall effect on apparel exporters, especially MSMEs, is burdensome and stressful due to a substantial increase of working capital and higher transaction cost. MSMEs have to recruit the services of chartered accountants to manage GST payments and refunds,” AEPC chairman Ashok Rajani conveyed to the panel.

In early October, the GST Council had allowed merchant exporters to pay a nominal GST of 0.1% for procuring goods from domestic suppliers for export. But the rules finalised by tax authorities are cumbersome and exporters continue to face difficulties, industry sources said.
Merchant exporters, who source goods from manufacturers and export them, have been mandated to use only registered warehouses, a condition that they are finding tough to comply with.

Similarly, rules require an exporter to share details of a buyer along with the price at which it has been exported. However, exporters are reluctant to share this commercially sensitive information.

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