Boycott China: Why it is difficult for India to punish China economically

While some people have suggested that India should adopt non-military means to punish the communist giant as a full-scale war against a nuclear adversary may not be advisable. Trade experts, however, say a ‘Boycott China’ or and economic boycott may also not be easy given the country’s heavy dependence on Chinese imports, particularly in some crucial sectors like pharmaceuticals, heavy engineering, IT and electronic products.

New Delhi: With the killing of 20 Indian soldiers at the hands of Chinese soldiers in a violent face-off at the Galwan valley in Ladakh early this week, the sentiments against China is running high in the country.

While some people have suggested that India should adopt non-military means to punish the communist giant as a full-scale war against a nuclear adversary may not be advisable. Trade experts, however, say a ‘Boycott China’ or and economic boycott may also not be easy given the country’s heavy dependence on Chinese imports, particularly in some crucial sectors like pharmaceuticals, heavy engineering, IT and electronic products.

“In my view, Boycott China is more of a rhetoric,” said an international trade expert who did not wish to be named.

According to a study conducted by the Confederation of Indian Industry (CII), China is the world’s largest trading nation, accounting for 13% of the world exports and 11% of the world imports. China has the highest share in the global trade at 13.3%, followed by the US which accounts for little over 8% of global trade, while India accounted for just 1.7% of the total global trade last year.

If one looks at India-China bilateral trade then the trade balance is heavily skewed in China’s favour. In FY 2018-19, India’s bilateral trade with mainland China (excluding Hong Kong) was at $87 billion, while India imported goods and services worth $70.3 billion from China, it exports to China stood at just $16.75 billion. It left a trade deficit of $53.55 billion.

Trade deficit basically means a country is importing more and exporting less. It has implication on current account deficit as the importing country will have to make payment in international currency like US Dollar, which will reduce its forex reserve.

What is even more worrying is that India’s export to China mainly accounts for raw material and primary goods such as iron ore and other raw material with little value addition. In contrast, China supplies finished products like engineering products, laptops, mobile and other IT products, including chemicals for manufacturing medicines in India.

If one looks at India-China bilateral trade as a share in the two countries’ overall global trade, then India accounts for just 1% of China’s imports and 3% of its exports. It means, even if India completely shuts its bilateral trade with China, the country will lose just 3% of its export market and will have to find new suppliers for just 1% of its total imports.

Whereas, China’s share in India’s import basket accounts for a whopping 14% and the country also receives 5% of India’s total exports. If both the countries were to completely suspend bilateral trade then just 1% of China’s import will be hit but India’s 14% imports will be hit.

For India, finding alternative and affordable substitutes in such a situation is not easy as China is fairly well integrated in the global supply chain.

If one looks deeper into India-China trade data, China accounts for 45% of India’s total electronics imports, one-third of machinery imports and almost 40% of organic chemicals come from China.

Similarly, According to the study done by the CII, China supplies more than 25% of India’s automotive parts and fertilizers.

Heavy dependence in Pharma and Telecom sector

India’s dependence on China is even more severe in case of some crucial sectors like pharmaceuticals.

Though, India is one of the world’s largest generic drug manufacturer in terms of volume, however, it is heavily dependent on China for sourcing key ingredients that are known as Active Pharmaceutical Ingredients (APIs).

In fact, the drug prices in the country shot up early this year after China announced a lockdown in Wuhan to contain the spread of coronavirus as most of the APIs imported by India are produced in Wuhan province of China.

Supply disruptions prompted the government to consider airlifting APIs from China to ensure availability of medicines in the country.

Similarly, India is still heavily dependent on China for procuring mobile parts to assemble smartphones in the country. According to the CII study, India imports 90% of its mobile parts from China.

Chinese brands like Oppo, Vivo, Xiaomi and RealMe, who basically import a large number of components from China to assemble phones in India, account for nearly 70% of India’s smartphone market, leaving behind Korean, Japanese and US brands like Samsung, LG, Sony and Apple iPhone.

“An ordinary buyer who buys a laptop or a smartphone always looks at the price. He will not mind buying a Chinese product if it is cheaper by 20%,” said Rakesh Mohan Joshi, head of research at Indian Institute of Foreign Trade.

Industry may bypass import curbs against China

Some media reports in the last few days suggested that the Government was considering to impose restrictions on imports from China. However, experts point out at the hard realities of global trade commerce.

They say it is not only India that is dependent on Chinese exports but several other countries, including advance economies are also dependent on China for sourcing key components.

According to some estimates, China is the top supplier of finished and semi-finished goods for 100 countries in the world.

Experts believe that industry might look for ways to bypass the curbs if the government imposes stringent conditions on sourcing goods and services from China.

“Last year, Trump administration imposed several restrictions on the US companies dealing with China, particularly with Huawei. But later several US companies registered their subsidiaries in European countries to bypass these restrictions,” Mrutyunjay Mahapatra, former MD and CEO of Syndicate Bank told ETV Bharat.

(Article by Krishnanand Tripathi)