cross-border issues

Think before you fall for #BoycottChina. Breaking trade ties will hurt Indian business

The economic dependence between the neighbours has been increasing and India relies heavily on Chinese imports.

Even as India and Pakistan are at loggerheads over the militant raid on an Army base camp in Kashmir’s Uri and subsequent surgical strikes on September 28 by the Indian military on “terror launchpads” across the Line of Control, China once again blocked India’s bid at the United Nations to designate Jaish-e-Mohammed chief Masood Azhar as a terrorist.

This was seen as China’s way of expressing tacit support to Pakistan, which India has blamed for the September 18 Uri attack that killed 19 soldiers, and which has denied India’s claims of surgical strikes. After China on October 1 stalled the process of declaring Azhar a terrorist, many Bharatiya Janata Party leaders called for a boycott of Chinese goods. Azhar, who is considered to be the chief of the Jaish-e-Mohammad in Pakistan, is an accused in the 2001 attack on the Indian Parliament and the January terror raid on the Pathankot Air Force Station in Punjab.

China had also vetoed India's bid in March to have the UN label Azhar as a terrorist.

In a series of tweets on Monday, BJP national general secretary Kailash Vijayvargiya said that buying Chinese goods was like giving “indirect support to a terrorist country” . However, he later deleted them and someone who identified himself as Pranjal posted from his Twitter account and claimed that he had posted the tweets without the BJP leader’s approval.

Many others, including Haryana Sports Minister Anil Vij, however, stood by the boycott, claiming that Chinese exports are hurting the Indian economy. Assam minister Himanta Biswa Sarma also asked the people to avoid buying Chinese products for the ongoing Durga Puja festival. This sentiment found favour among social media users, who posted several tweets with the tag #BoycottChina.

Number game

The buzz also predictably trickled to instant-messaging application WhatsApp, with messages doing the rounds urging people to stop buying goods made in China and cut trade ties with the East Asian giant.

But like so many other messages circulated on WhatsApp, this needs to be taken with a pinch of salt.

India is heavily dependent on Chinese imports and any weakening of trade ties between the two countries will substantially hurt Indian businesses. China is India’s biggest trading partner, with the total value of imports and exports exceeding Rs 4.6 lakh crore. The US, which is next, barely touches the Rs 4 lakh crore mark in total trade.

As the chart above shows, India imports about seven times as many goods and services from China than it exports to it, in one of the world's biggest trade deficits between two nations.

These imports range from consumer electronics such as phones and laptops to nuclear machinery. Other major imports include plastic items, industrial goods, and vehicles.

So dependent is India on Chinese imports that even as India’s global trade shrank by almost 20% during 2011 to 2016 owing to a global slowdown, its imports from China grew by a healthy 11.5%.

Moreover, China is manufacturing hub for many global brands like Apple, whose products are the lifeline of big Indian retailers and traders.

Strong dependence

There has been a greater economic integration with as well as dependence on China ever since it replaced the US as India’s biggest trade partner. China signed trade pacts worth $10 billion last year when Prime Minister Narendra Modi visited it.

A healthy trade relationship with China is a matter of life and death for India – literally. India is reliant on China for about 90% of the raw materials required for its pharmaceutical industry according to a report by the Boston Consulting Group.

“Any deterioration in relationship with China can potentially result in severe shortages in the supply of essential drugs to the country,” Bart Janssens, partner, Boston Consulting Group was quoted as saying by the Economic Times. "Additionally, China could easily increase prices of some of these drugs where it enjoys virtual monopoly."

Commentators have long been pointing out the need to shore up India’s manufacturing sector to boost Indian exports and balance trade with China so that it is not reliant on one country for multiple commodities.

The way ahead

Instead of a boycott, India should try to understand which Chinese products are actually essential. The assumption that Chinese imports are economically more competitive than homegrown products or those produced in other countries has also been challenged. A study carried out by SK Mohanty for the Reserve Bank of India in 2014 found that one-third of all products imported by India from China in 2012 were at relatively uncompetitive prices.

“The magnitude of uncompetitive bilateral imports from China increased from $6.3 billion in 2007 to US$ 8.4 billion in 2008, and further to US$ 9.7 billion in 2012,” the study noted. “Empirical evidences indicate that bilateral imports from China have been uncompetitive in several sectors including textiles and clothing, automotive, chemicals, etc.”

The study concluded that the neighbours have a strong potential to emerge as “efficient partners” in many sectors.

“India is likely to gain from its engagement with China, provided cautious approach needs to be pursued to restore long-term interest of India from its bilateral economic engagement,” it said.

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