Trade deficits are very emotive issues. They not only affect the conduct of relations between developing countries but they can also launch a bitter tussle between even the most powerful countries of the world. Case in point is the trade war between US and China where US President Donald Trump has launched an offensive against Chinese products due to a mounting trade deficit between the two countries. In India, currently a call to boycott Chinese products by Sonam Wangchuk is making headlines. Wangchuk is an education reformist whose life has inspired the blockbuster Bollywood film 3 idiots.
Wangchuk has given a full-fledged plan to boycott Chinese products by appealing people to boycott non-essential items first followed by essential items and raw materials over a due course of time. The call has become a popular rallying point for Indians who are currently dealing with the economic impact of Covid crisis. The fact that China has shown aggression against India in Ladakh is also not helping the matter. Hence, “Boycott China” is taking shape of a movement with even Bollywood celebrities such as Milind Soman, Ranvir Shorey and Arshad Warsi coming forward to back Wangchuk’s call. What is important here is that emotive appeals hardly translate into a sound trade policy for a rising power like India.
The calls to boycott Chinese products are nothing new to us Indians. Every time China takes any step that threatens India’s security, Indian politicians and thought leaders immediately start campaigns to boycott Chinese product. Call to boycott Chinese products have been given in the past by Swadeshi Jagran Manch as well as Confederation of All India Traders in the past. The last time a call to boycott Chinese products was given when China supported Pakistan’s case on abrogation of Article 370 in UNSC. This time the call for boycotting Chinese products has coincided with a “Ban Tik-Tok” campaign where netizens in India are calling the government to completely ban the Chinese app because it is being used to foment communal tensions in the country. “Boycott China” is a particularly attractive appeal during times like these when Covid19 has arrested our usual pace of life and origin of the virus is being traced to China. But the logic to reduce India’s dependence on Chinese products is much deeper.
It is a fact that India is hugely dependent on Chinese products to fulfil its needs. China is responsible for 40% of India’s total trade deficit. In 2019, Chinese exports to India amounted to $75 billion whereas Indian exports to China stood at a mere $18 billion. India’s dependence on Chinese products can be understood from the fact that around 20% of the auto components, 70% of electronic components, 45% of consumer durables, 70% of APIs and around 40% of leather goods are imported from China. On the other hand, Indian exports to China are dominated by gems & jewellery, minerals, organic chemicals etc.
Much before the current Covid19 crisis and Sonam Wangchuk’s campaign to “boycott China”, ‘Make in India’ imperative of Modi government had already made key companies in areas such as basic chemicals, pharmaceuticals, consumer durables space and auto equipment to explore indigenous manufacturing and source raw materials locally. The current supply chain disruption due to Coronavirus crisis has only accelerated their quest to manufacture components locally that till now were being imported from China.
The thrust on boycott Chinese products is not only on replacing cheaper Chinese alternative with Indian products but it is also on making Indian Products competitive in markets which are currently dominated by China. Research by online portal Money control gives an insight into this. Currently China contributes 24.6% to Japan’s import, 21.8% to European Union’s imports and 24.8% to Australia’s import. In comparison, India’s share in Japan’s import is 0.8%, European Union’s import is 2.5%, Australia’s import is just 1.8%. If Indian manufacturers take the call to “Boycott China” seriously by manufacturing products locally, it will provide them with a new-found capability to compete with Chinese products in all these foreign markets as well. This will create a huge opportunity for Indian economy abroad.
Starting from 2017, government has imposed 20% import duty on mobile phones, televisions and white goods such as refrigerators, air-conditioners and washing machines. Government has also increased duties on import of key components for all these products. The result of increased duty is that manufacturing in India locally is no more a choice but has become a compulsion for companies that deal in these products. As a result, investment in these sectors has seen an upward spike with major companies such as Bosch and Siemens, Panasonic, and even Chinese company Midea opening its manufacturing facility in India itself. Here a distinction needs to be made between products made in China and Chinese brands that have opened manufacturing facility in India itself. Smartphone brand Oppo has set up factory in India and brands such as Vivo are marketing their products with a “Made in India” logo.
The effect of this strategy can’t be especially ignored during the current crisis when supply chains and imports from China have been disrupted. Companies now have an even greater incentive to manufacture in India as the lack of key components that used to be procured from China are now making them produce these components locally. Another example is of the Agarbatti industry where due to the India-ASEAN free trade agreement, Agarbatti from Vietnam and China were flooding the Indian market and killing demand for indigenous products. As a result, the government was forced to re-categorise Agarbattis from ‘free’ to ‘restricted category’. This has led to setting up of new 50,000 Agarbatti units by Khadi and Village Industries Commission thus creating employment for Indians.
Due to a lack of technology and import from China, many manufacturers in India are currently facing closure. Atlas Bicycles is just one example of an Indian manufacturer closing down its units one after another due to Chinese competition. Atlas and many other local manufacturers had turned into importers by importing products from China and selling them to their Indian customers. A sounder strategy would be to manufacture locally and export to international markets. Bicycle industry is now seeking assistance from the government through a revival package under Make in India initiative to execute the same.
The fact remains that “Boycott China” is no more just a political plank to cash on China’s aggressive moves against India. Due to coronavirus crisis and India’s Make in India initiative, it has actually become an important part of India’s trade strategy. Commerce Minister Piyush Goyal has asked stakeholders across the world to identify alternative suppliers of close to thousand products that are currently procured from China. Around 500 of these products are being targeted to be manufactured locally thus creating employment within the country. All this said, India is still dependent on Chinese products in key sectors but at least a beginning has been made.
About the Author
Monica is a PhD Candidate at Department of International Relations, South Asian University where she is assessing the political economy of regional integration in South Asia. She tweets at: @trulymonica.