Note: This article was first published on June 9, 2020 and is being republished on June 17, 2020.
When Prime Minister Narendra Modi, in his address to the nation, gave a clarion call for an ‘Atmanirbhar Bharat’ last month, an undercover tirade seemed to have developed amongst the masses against the products that we import. This inflammatory exasperation was more specifically targeted towards our immediate neighbour, China – a country which has been declared guilty of manufacturing and spreading the novel coronavirus.
Not far away from the Line of Actual Control in Ladakh, Sonam Wangchuk, engineer, innovator and the inspiration behind director Vidhu Vinod Chopra’s popular Hindi film 3 Idiots, from Ladakh, took to social media to promote the boycott of all products ‘Made in China’. Wangchuk’s video from Ladakh drew over 20 lakh views in two days but he went on to assert that these should be converted into something concrete that would bite the Chinese government.
With all this rumbling in the air, the million-dollar question that needs an immediate answer is how plausible is it to talk about insulating ourselves from the influx of materials from this global trading giant?
Trade figures suggest that India is the biggest importer of Chinese consumer goods. India imports almost seven times more from China than it exports to it. India has huge trade deficit with China – its largest with any country. In 2018-19, India’s exports to China were mere $16.7 billion, while imports were $70.3 billion, leaving a trade deficit of $53.6 billion.
It needs to be acknowledged that China’s exports to India account for only 2% 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. 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, and essential pharmaceutical products including tuberculosis and leprosy drugs and antibiotics, among many others.
In 2017-18, almost 60% of India’s import requirements of electrical and electronic equipment was met by China. In our smartphone industry, out of the five bestselling phone brands in India, four are Chinese – Xiaomi, Vivo, Realme and Oppo. These four brands combined dominate over 60% of the smartphone market in India. On the other hand, 30% of India’s automobile components are met from China and about 90% of the country’s toy market is occupied by 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 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 majority 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 critical dependence on Chinese imports used in drugs manufacturing.
India’s potential to manufacture hydroxychloroquine (HCQ), which was in a great demand recently as a possible cure for COVID-19, greatly depends on the Active Pharmaceutical Ingredients (APIs), or the raw materials used in the manufacture of these medicines or formulations. China is one of the leading producers and sellers of APIs, raising an alarm for us before we boycott Chinese products.
Of course, China also aspires for 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 has 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. Assuming China to be solely dependent on India as a market is not backed by any evidence.
Similarly, in times of globalisation and being governed by the rules of the WTO, any efforts at creating systemic impediments to the smooth flow of trade across nations on trivial jingoistic parameters are surely going to backfire, one way or the other.
Past attempts of this kind
It is important to understand that calls for this kind of consumer boycott are hardly new or unique. History testifies that such attempts have been tried without much success many times. China itself tried to boycott all Japanese products in the early 1930s to protest against Japanese colonisation. Similarly, US consumer forums tried to boycott French goods in 2003 to protest against France declining to send troops to Iraq post 9/11. Arab nations have also many a times boycotted Israeli and American products with regard to there stand on Palestine.
What these events have in common is that none of the boycotts were successful, and dissipated within a few weeks. The reason for failure is simple: economics defies all shackles perpetuated by emotions and isolationism.
One step at a time
The rhetorical calls for boycott won’t buy us self-reliance or an Atmanirbhar Bharat. A pragmatic blueprint needs to be put in place.
A mechanism for import substitution needs to be worked out, by creating such product alternatives which can compete both in quality and cost against 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%. This is very low compared to the 2% and 1.2% spent by China (for 2015) and Brazil (for 2014), respectively. Countries like Israel spend as much as 4.3% 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 technology and skill to fight this trade battle.
Secondly, the government must lower the rates at which loans are issued to Indian companies, just like China. Recently, finance minister Nirmala Sitharaman announced a stimulus package to address the needs of various sectors battling for survival. Now, steps should be taken to ensure these announcements are actually implemented on the ground and aren’t reduced to hollow jumlas. In addition to this, the government must provide infrastructure, services, etc. to prepare Indian companies to compete with China.
Thirdly, the foreign direct investment (FDI) regime also needs to be further liberalised. India receives only 25% of the FDI that China gets and only 10% of what the US receives. Increase in the levels of FDI may provide the necessary nudge to our industrial sector to surge towards better productivity and efficiency.
Lastly, it would be extremely beneficial if we diversify our import basket, by importing our necessities from a host of other countries and lessening our dependence on China. All these steps, collectively, could take us closer to self-reliance.
The 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.
Increasing mutual investment and encouraging Indian companies to participate in the China International Import Expo will strengthen bonds between these two economic giants. We must acknowledge that China has a strategic role to play in India’s growth.
COVID-19 has taught us that a battered economy effects us all collectively in a globalised era. Thus, aspiring for a strong India-China relationship is important not only for the mutual benefit of the people of India and China, but also for the region and the world.