In the present era of globalisation and open international trade, a nation is dependent on other nations for exchange of goods and raw materials. Indian economy adopted the LPG reforms during 1991 which led to the opening up of the economy to the outside world. Since then India has been involved in trade with different countries for different products as well as for raw materials. One of the major trade partners of India is its neighbour China.
China is one of the major trade partners of India and India imports a variety of products from China. The trade relations between India and China are however skewed in favour of China as it imports significantly less compared to Indian imports. The increase in tensions near LAC has fanned anti-Chinese sentiments among the masses which has led to a rhetoric against Chinese products. The Doklam standoff in 2017, recent standoff near LAC in Sikkim and Galwan valley in Ladakh etc have given rise to a strong wave of boycott Chinese goods movement. Even though self-reliant India vision is a good one still several delicate aspects need to be addressed before it can be achieved.
Bilateral relations between India and China also known as the Sino-India relations have existed for decades even though both the countries have certain border issues. India is a major market for Chinese goods and these products have established their roots in almost all sectors in India. India and China’s relations have had to pass through number of ups and downs due to conflicts at the borders and for certain actions of China that have hindered India’s growth and at times have raised concerns about India’s security. In such a scenario when the Sino-India relations face a sour situation, a wave of ‘boycott Chinese products’ engulfs the Indian masses. Recently, the Covid-19 pandemic that originated from Wuhan in China and the standoff situation between Indian and Chinese army personnel near the Line of Actual Control (Naku La in Sikkim, Pangong Tso lake area in Ladakh and Galwan river valley area, Ladakh) have given rise to resentment among Indian masses and the wave of boycott Chinese products has gained momentum in India.
India-China Trade Relations
India and China are two major rapidly developing economies in Asia. Both the nations have been involved in trade since ages. However, after India opened up its economy in 1991, it has been actively involved in trade of variety of products from China. The opening up of Indian market increased the choices of products available in the market due to involvement of different foreign companies and primarily of the Chinese products. China has been infusing the Indian market with low price products that have gained popularity among the Indian masses due to the value they gain for money spent. China has been an affordable source of consumer products for Indian market since the last part of 20th century. India imports a wide range of products from China which include mobile phones and parts, personal computers, circuit boards, engineering products, electrical products and electronic goods, ingredients for medicines, other drugs and antibiotics, pharmaceutical products, chemical products, industrial machinery for dairy products, fertilisers, vehicles, solar cells, power plant inputs, finished steel products etc. However, it has been seen that majority of imports from China are manufactured products whereas India primarily exports raw materials to China.
Due to the rapid growing Chinese market, its expansionary nature and its increasing demand in India for Chinese products, China has become the largest trading partner of India. In Sino-India trade relation, India imports more from China compared to China’s imports from India. As per the data of World Bank in 2016, exports from China to India was about 2.7% of India’s GDP which was almost equal to 0.5% of China’s GDP. At the same time, India’s export to China was only about 0.08% of Chinese GDP and about 0.45% of Indian GDP. Also, in the financial year 2016-17, China accounted for about 16% of India’s imports whereas only 4% of India’s exports went to China. Imports from China soared high during 2017-18 at about 76.4 billion dollars and it fell to about 70.4 billion dollars in 2018-19. During 2019-20, in about 11 months the figure stood at 62.6 billion dollars. In the year 2017-18, the total trade between India and China was about 89.6 billion dollars with trade deficit of about 62 billion dollars in favour of China. The trade deficit declined to about 53.6 billion dollars during 2018-19. Hence, it can be easily said that India has the largest trade deficit with China among all its trade partners. These figures explicitly indicate that the trade relations between India and China are skewed in favour of China.
Chinese Investment in India
China has also made significant investment in Indian companies. About 4 billion dollars have been invested by Chinese investors in start-ups. The two major Chinese investors are the Alibaba Group and the Tencent Holdings. As per reports of think tank Gateway House, ‘the Alibaba group has investments in brands like the Big Basket (250 million dollars), Paytm (400 million dollars), Paytm mall (150 million dollars), Zomato (200 million dollars) and Snapdeal (700 million dollars). Similarly, the Tencent Holdings, another Chinese investor has investments in firms like Byju’s (50 million dollars), Dream11 (150 million dollars), Flipkart (300 million dollars), Hike messenger (150 million dollars), Ola (500 million dollars) and Swiggy (500 million dollars).’ These are among the major start-up firms of India in the last few years. China also has made significant investments in India’s digital sector. Chinese apps like Tik Tok, CM Browser, other web browsers, data sharing apps and social media apps account for about 50% of the app downloads in both iOS and the Google play store. Besides these, streaming services like apps for songs and OTT platforms also have Chinese investments.
Apart from this China’s tech company and Venture Capitalist investments add up to about 3.6 billion dollars. As the Indian Venture Capitalists are not able to finance the commitments needed in order to support start-ups to overcome their early losses, the western and Chinese investors are the major players left in the competition in India’s start-up space. It has also been seen that the Indian companies that have Chinese investments are primarily e-commerce retail service providers that offer door to door delivery in India. As per data of Indian government Chinese FDI has also increased over the years. In the period from 1991 to 2005, FDI equity flows from China to India was a meagre 0.01% (2.91 million dollars) of India’s total FDI. From 2000 to 2020, the Chinese FDI was about 0.51% (2378.71 million dollars) of India’s total FDI. This increase in FDI inflows has been primarily seen starting from 2014.
Effect of Boycotting Chinese Products and Over Reliance in Domestic Production on the Economy
Boycott of Chinese goods has been suggested due to variety of reasons by different people. The reasons include viewing China as an enemy, considering Indian trade with China as a deal of loss for India due to India’s trade deficit on accounts of considerably less imports of China from India in comparison to imports from China to India. It is also suggested that if India stops importing from China and focuses on producing products domestically then it would strengthen Indian economy and would be beneficial for small traders and domestic companies. Lastly, this idea of boycott has been fuelled due to the increasing conflicts between India and China near the LAC due to increasing Chinese aggression. However, boycott of Chinese products will have significant impact on India and its economy that cannot be ignored. First, Indian government cannot categorically ban or stop import from one specific country. Use of anti-dumping duties, increasing import standards to keep out lower quality goods etc can be of help to reduce import but this has to be done only after proper investigation has been done and such facts have been proven as per the international and bilateral trade guidelines. Second, considering China as an enemy and hence cutting off ties with it is not logical as China is not the only neighbouring nation with which India has border disputes. Further, China views India as its major market and the trade relations between the two nations have kept in check the conflicts at the border. Without any trade relations it may so happen that China may increase its aggression at the borders and LAC thereby disrupting the peace and tranquillity of the region.
Third, India is dependent on several sectors for products and raw materials import from China whereas China is not so much dependent on India for imports. This considered, cutting off trade would not have any major or significant effect on China or its economy whereas it will have significant impact on Indian economy whose indirect effect have to be borne by the small companies and the end customers. Fourth, India is not self-sufficient to produce all the products that it imports from China and hence, will have to import the product from other countries in case of a complete boycott of Chinese products. This will lead to an increase in premium that India has to pay to other nations and hence will adversely affect the economy. And India cannot be completely self-reliant as it will have to import certain things like coal, gas, rare earth metals etc that it cannot produce domestically and also for remaining a part of the global supply chain. In such a scenario, China serves as a much-needed trade partner for India. Fifth, India has already been through a phase of complete self-dependence from 1947 to 1991. During this period it was noticed that Indian domestic products had lower quality and Indian companies had given up on improving the quality as there did not exist any scenario when they would have to compete in the global market thereby eliminating the chances of competition and hence it had put on hold the creativity, innovation and overall development of companies.
Sixth, Chinese products have spread deep and wide in Indian market and in the present globalised world; it would not be possible to label out products as completely Chinese or 100% indigenous. Seventh, Chinese companies have massive factories focussed on manufacturing and they have occupied a good position in the global supply chain. It would become an arduous task on part of Indian companies to compete with these companies and provide the Indian customers with products that satisfy the consumer demands and provide them the value for their money which was the primary reason behind the popularity of Chinese products in India. Lastly, China has significant investments in India and cutting off ties with China will lead to loss in terms of FDI besides causing loss in terms of variety of important products like Active Pharmaceutical Ingredients for manufacture of medicines etc.
Steps Needed for Self-Reliant India
Self-reliant India or Atma-Nirbhar Bharat has been the recent slogan of Indian government. For developing potential of Indian market, India needs to improve on different fronts. India needs to invest on massive capacity building on companies that are focused on economic growth driven by manufacturing and also make room for financing start-ups. Increase in companies and start-ups would also lead to generation of employment opportunities. India can focus on strengthening the economic activities where it already has an advantage and boost it for further development. In case of China, India can focus on negotiating with China to open its market for Indian services, finished goods, generic drugs etc that will help to raise India’s export and will subsequently motivate the Indian companies to improve and grow. India also needs to deal with the issue of high cost to be paid by the end customers in case of self-reliance approach as high cost would push away customers. India can also make reasonable use of tools like anti-dumping duty, increasing customs duty etc in order to decrease on the export front so as to motivate domestic production and domestic players.
India needs to focus on competing with the Chinese and other imported goods on quality and cost front. A key challenge that needs to be addressed is the low expenditure on research and development. India needs to increase its research and development facilities with increased financing for the sector. This lack of proper R&D facilities acts as a major hindrance in the path of self-reliant India. It has been seen that countries like China, Brazil, and Israel etc spend about 2%, 1.2% and 4.3% of their GDP respectively on R&D compared to India’s meagre 0.7%. The improvement in R&D would prove to be beneficial for Indian companies by providing them with requisite technology and skill to fight the trade battle. Other areas where India needs to focus is lowering of loan rates for Indian companies in order to motivate them, providing for improvement of infrastructure and services of the companies, liberalising the FDI regime so as to increase the inflow of FDI etc. Lastly, India needs to widen its import basket, by gradually focussing on other nations for import of necessities so as to reduce dependence on China.
Boycott of Chinese products will have significant impact on the Indian economy as India is heavily dependent on Chinese products that have spread wide in the Indian market. Indian companies have been unsuccessful to match with the Chinese ones in providing the masses product that give them proper value for their money. In such a scenario it would be unwise to go for complete boycott of Chinese products. Besides economic impact the boycott would have on Indian economy, there would also be issues arising from the WTO and in the global market if trivial jingoistic parameters as used to create impediments to the smooth flow of trade during this era of globalisation. Further, complete boycott in present times is not possible as it will fail for sure as has been seen in number of cases like the imposition of sanctions of US on Iran despite which it involved in significant trade, Chinese boycott of Japanese products during 1930s, US boycott of French goods during 2003, boycott by Arab nations on Israeli and American products etc. In this backdrop it would be beneficial for India not to focus on hyper-nationalistic approach and to focus on mixed approach based on parameters like capacity building, improving quality, developing R&D facilities etc so that over dependence on Chinese products is reduced along with development of domestic companies that would help India to become self-reliant.