Trade With China: 'India Still Engaged, But Looking at Domestic Manufacturing'

The government is also looking at ways to reduce dependence on Chinese products in critical areas like pharmaceuticals and electronics, a senior commerce ministry official said.

New Delhi: While India-China relations stay frozen due to the border stand-off, New Delhi continues to remain engaged with Beijing on issues related to market access, even as the government is also looking at ways to reduce dependence on Chinese products in critical areas like pharmaceuticals and electronics, a senior commerce ministry official claimed on Friday.

Speaking at a session of the All-India Conference of Institute of Chinese Studies, Additional Secretary of the department of commerce in the Ministry of Commerce and Industry, Sanjay Chadha, noted that India’s interactions with China had been governed by political imperatives, which spilled over trade relationship in recent times.

Since May 2020, Indian and Chinese military has been engaged in a stand-off at multiple friction points in eastern Ladakh. While talks have been held at various levels, there are still no signs of resolution.

Following the death of 20 Indian soldiers at a violent face-off, India took several economic measures against China including the ban on Chinese IT firms’ mobile applications, restrictions on foreign direct investment and cutting Chinese firms out of 5G trials.

At the special session on ‘Reducing Dependency in Economic Engagement with China,’ Chadha asserted that India is still “engaged with Chinese authorities,” but this engagement is mostly on complaints raised against Indian firms.

“I don’t think that when it comes to market access, NTBs we have stopped highlighting their opaqueness..,” he said.

Citing an example, Chadha noted that following the China-US trade wars, there has been a sharp rise in exports to both countries. The hike has been mainly in marine products with China, with shrimp exports increasing “hugely from a few million dollars to almost a billion dollar”.

This year, the Chinese, he stated, had begun to raise fences. “We have questions [from China] that this [Indian] exporter’s packing is not correct and [that there is] COVID-19 coming in…but he is our customer, so we are having talks with the Chinese side, telling them that this is a total non-tariff barrier.”

The Indian official indicated that the message was conveyed that even New Delhi can bring up such ad-hoc processes. “Tomorrow, we can also say that…electronic components coming into India have COVID-19 traces on the packet.”

Also read: Trade War With China Can Set India’s Economy Back by Years: Former Niti Aayog Vice-Chairman

He also pointed out that access to the Chinese market had always been problematic for Indian exporters, even after the signing og several trade agreements.

“In 2018, we signed a record number of protocols…But, none of this materialised into substantial trade. Knowing that China is a huge importer, we could not capitalise on it even when we got access. A lot of our exporters put it down to the fact that the market is not very open or free”.

The Indian official reiterated that this opaqueness in the system was evident when he travelled with a group of sugar exporters to China. “They [Indian sugar exporters] gave a rate which was $ 40 below Pakistan, and we couldn’t make headway. They [the Chinese] went on saying that this was a different strategic relationship under which we are taking sugar [from Pakistan]”.

However, the protocols did come in use in 2020 for the export of rice to China. “You must have read in the papers that we had record export of rice. Our exports to China, of rice, increased perhaps because other sources dried up, so the protocol came in handy.”

In fact, Indian exports to China rose by a record 16% last year to $20.86 billion. With Chinese imports going down, the trade deficit came down to $45.8 billion, the lowest since 2015, The Hindu reported. China is India’s second largest trading partner, with total bilateral trade at around $87 billion in 2020.

Chadha argued the point that the issue was not about the trade deficit, but about over-dependence on one source. “A mobile phone requires 85% of content from one country. If China stopped the API for penicillin, we would not be able to produce it in this country. When somebody controls your production, that raises the concern.”

An October 2020 report published by Institute of Chinese Studies’ honorary fellow Santosh Pai had found that China accounted for more than 80% of India’s imports in 375 categories of items in 2018-19.

Out of the 57 product categories which have 100% dependency on China, the three industries of pharmaceuticals, electronics and automotive account for about 19%.

He expressed the belief that if Production-Linked Incentive schemes are successful, India “will be reducing our dependence on a single source”.

“It should not be as much about the China obsession, as much as marking some resilience in the supply chain,” he added.

When some firms began relocating from China, Vietnam was the biggest beneficiary, but India admittedly had not managed to fully capitalise on that trend, stated Chadha.

He also added that most companies are not entirely relocating from China, but are just putting their additional capacities outside the Asian country. “We saw Apple start manufacturing in India. PLI will accentuate this kind of investment”.

Narrating that the PLI schemes had led to heightened interest, Chadha also recounted that after the worker unrest at an Apple supplier factor in Karnataka, one of the reasons given by the firm was that there had been a sudden expansion in the workforce in a couple of months. “They said that when the PLI came in, the firm wanted to ramp up production to 12,000 employees. So, they took in 10,000 employees in the period of 3 months…perhaps they were issues of screening,” he said.

The PLI schemes were also introduced to replace the earlier export subsidies deemed illegal by the World Trade Organisation in a dispute with the United States in November 2019.

Another way of reducing reliance on a single country, Chadha asserted, was more free trade agreements. 

“Till 2015, our steel imports were maximum from China, 2.8 billion. Today, less than a billion, but our overall steel imports are high. Who has replaced china? Korea. Why? Korea FTA gave a zero per cent duty to steel imports, and now it can compete with a 15% tariff difference. So, FTAs result in diversification of trade,” he said.