The Indian government is exploring the possibility of restricting the import ofcheap electronics and Information Technology products from China. The reason that is being advanced for imposing such restriction is to prevent security and data leakages.The immediate provocation seems to be the India- China standoff at the Doklam plateau.
However, now that both the countries have agreed to de-escalate the tension by withdrawing the respective troops from the disputed area, India should now rethink its strategy of putting embargo on Chinese products as it will further damage the already fragile relations between the two countries. Instead, it should take steps to take uptalks with China to correct the present one-way trade, where China continues to be the beneficiary.
Although, the trade is skewed heavily in favour of China, any move to put a restriction of Chinese goods will hit Indian industries hard, as India imports over $22 million of cheap electronics and information technology products for its electronics and power sectors.
If India decides to put an embargo on Chinese goods, and decides to import from other countries, it would involve a huge cost escalation and will affect the power sector as the cost of power generation will drastically increase; similarly, the telecom and IT industry, which depends on import of hardware from China, will also be affected
The Chinese media had recently criticized India for imposing anti-dumping duties on over 93 Chinese products. The anti-dumping duties on chemicals and machinery items imported from China are already in place for quite some time. The other Chinese product on which India has imposed anti-dumping duty, includes steel and other metals, fibres and yarn, rubber or plastic, electrical and electronics and consumer goods.
The logic behind imposing anti-dumping duties is mainly to protect the domestic industries, as they are not able to match the price of cheap Chinese products. The anti-dumping duties aim to create a level playing field for the Indian manufacturers.
Moreover, any step to impose unreasonable restrictions of imports from China would amount to a contravention of the World Trade Organization’s laws. Secondly, as the local manufacturing companies in India are not geared up to supply goods to the fast emerging power and telecom sectors, India may be forced to import Capex equipments from the United States and Europe at a prohibitive cost which may put an additional financial burden on these two sectors.
Today, China is India’s largest trading partner, with a bilateral trade of$71.5 billion. The China’s total exports during the last fiscal stood at $61.3 billion against India’s exports of $10.2 billion.The trade deficit, which stood at $37.2 billion a few years ago, now stands at a whopping $51.1 billion.
One of the main reasons for thisunfavourable trade is that India exports only raw material like iron ore, copper to China. The deficit can be reduced only when India starts exporting value-added products. Unfortunately, the Indian manufacturing industries have to go a long way before they are geared up to export value-addedproducts to China.
India, one of the largest manufacturer of generic drugs,has not been able to export to China because of their protectionist policy. While the Indian pharmaceutical companies are exporting generic drugs in a big way to the United States and Europe, as most of the drugs have received the FDA and EU approval, it is strange that China is not allowing imports of drugs from India.
The Indian pharmaceutical companies have taken up the issue with the Indian Commerce Ministry to facilitate export of generic drugs to China, especially when the Chinese delegation hadcompleted the inspections of their manufacturing facilities about a year back.The Indian Commerce and Industry Minister has taken up the matter with her Chinese counterpart in this regard. It is learnt that she has received a favourable response from that Chinathat it will take necessary steps to correct the trade imbalance.
The Chinese companies have huge investments in the cell phone business, telecom and power sectors. Added to this, import of power and medical equipments have become the backbone of India’s manufacturing requirements of critical goods. One of the reasons for popularity of Chinese goods is that it they are cheap compared to locally manufactured goods and also imports from the United States and other Western countries.
If India decides to put an embargo on Chinese goods, and decides to import from other countries, it would involve a huge cost escalation and will affect the power sector as the cost of power generation will drastically increase. Similarly, the telecom and IT industry, which depends on import of hardware from China, will also be affected.
Despite the Indian Prime Minister’s “Make in India” initiative, India is finding it difficult to increase its manufacturing capabilities in a short span. Till India is able to create a sound manufacturing base, it should refrain from imposing any unreasonable restrictions on Chinese goods, as it would stand to suffer more than China. It must be mentioned here that the Chinese exports to India account for only 2 percent of its overall exports.In case of any boycott of Chinese products, it is the Indian manufacturing companies that will be hit the most.
Both the Chinese President and the Indian Prime Minister are known for their matured leadership and gravitas. Both of them should immediately engage in a dialogue to diffuse the tension between the two countries. The upcoming BRICS forum scheduled in China would be the ideal platform for both the leaders to address the trade imbalance.
K.S. Venkatachalam is an independent columnist and political commentator
Published in Daily Times, September 2nd 2017.