Retaliating China: Jingoism should not eclipse reality

By Dr Santosh Kumar Mohapatra*

After, 45 years, on 15-16 June, the face-off with China on the Line of Actual Control (LAC) in the eastern Ladakh region and the significant fatalities on both sides due to gruesome, brutal clashes in the Galwan Valley has exacerbated already trust deficit between both countries. The deadly border skirmishes have changed the fragile balance of this relationship.

Even as the world woke up to the worst India-China border confrontation in over five decades, the brutal deaths of brave 20 Indian soldiers are difficult to stomach. We should condemn, denunciate such dastardly act of China in unison and China should be taught a lesson. But it has resulted in further strengthening of the already extreme nationalistic feelings.

The unresolved border issue seems to sidetrack the economic developments.  It has cast a cloud over trade relations, which have seen the latter rapidly expand its footprint in the Indian economy, spanning infrastructure, physical goods and hi-tech, with the value of total bilateral trade surging 20 per cent in the last six years.

The Indian government has tried to respond to the border dispute with China by training its guns on trade.  What is reprehensible is that vilification campaign is being made against the greatest philosophy like communism or left philosophy simply because China is communist country. As there have been always conflicts, disputes among brothers, India has similar dispute with China and Pakistan.

It has nothing to do with Islam, communism or left philosophy. Soviet Russia had helped us a lot when it was under Communist regime especially when America was helping Pakistan. Similarly, we have good relations with many Muslim countries.  We had highest trade with UAE before it was replaced by China and then China being replaced by America.

The idea resonating in Indian streets is that Indians should boycott Chinese goods and thus “teach China a lesson”. This is unrealistic and a ploy to camouflage the failures of present ruling dispensation and divert the attention from real issues. Jingoism should not eclipse reality. Visuals of Indians breaking and burning their fully functional Chinese appliances such as TVs have been doing the rounds in social media.

On the import front, the government has indicated it is reviewing a list of 371 products that will face import restrictions here on. It is also reported that it will be mandatory for the E-Commerce companies to clearly show on their website, whether the product is made in India or otherwise. Measures like stringent quality norms and closer scrutiny of FTA (free trade agreement) misuse to curb Chinese imports are underway.

Union minister Nitin Gadkari, a big advocate of electric vehicles (EVs), is changing track. Import substitution and local manufacturing are his new buzzwords. Vivo’s Rs 2,199 crore title sponsorship of IPL is under review. The Confederation of All India Traders (CAIT) has urged Bollywood and sports celebrities to stop endorsing Chinese products.

Some days before the scuffle, the Confederation of All India Traders (CAIT) had released a list of over 450 broad categories of commodities to be boycotted, which have over 3,000 Chinese products. As reported in “Business Today” on June 25, importers say customs has stopped clearing goods originating from China since June 22.

Chinese participation in 5G tenders in India have been in doubt for a while; but now the Centre is also considering scrapping 4G telecom tenders for Bharat Sanchar Nigam Ltd (BSNL) to keep the Chinese companies out. Commerce Ministry would be re-looking into Chinese investments in India. Indian Railways has cancelled a contract worth Rs 471 crore , awarded to a Chinese company Beijing National Railway Research and Design Institute of Signal and Communication Group, in 2016. However, same instruction is not given to private telecom companies.

Rousing nationalistic fervour, Union ministers Ram Vilas Paswan and Ramdas Athawale called for boycott of Chinese goods and, strangely, food (made locally by Indians even though these would be Indian restaurants, employing Indian chefs (trained professional cook) and tradesman and using largely Indian agricultural produce to serve such Chinese dishes. Hashtags like #BoycottChina #BoycottTik-Tok are trending on social media.

While one can understand the indignation that Indians feel when they hear about the cruel deaths of their soldiers, turning a border or defence dispute into a trade one is an ill-advised move.  Excessive jingoism and calls for a boycott of Chinese goods will not help India in dealing with China. While the border question is complex, the economic one is even more complicated.

India would stand to lose more than China if trade were to be banned because vast size of China economy and its mammoth trade. The breaking of the TV sets, mobile phones are not going to harm China economically. The Indian government needs a new and nuanced strategy to counter the belligerent neighbour.

Chinese money has penetrated in India through both trade and investment. The data showed that China was India’s top trading partner since 2013-14 till 2017-18. Before China, UAE was the country’s largest trading partner. The US has surpassed China to become India’s top trading partner, showing greater economic ties between the two countries.

Brahma Chellaney, professor of strategic studies at the Center for Policy Research, says, “It is a one-sided relationship where China enjoys a massive trade surplus equal to the total defence spending of India. India is heavily dependent on China for everything from computers to hairpins. So is much of the world, with China producing over 70 per cent of the air conditioners, computers and smart phones sold in the world.

The government has allowed Chinese tech giant Huawei for 5G trials much against the advice of the Donald Trump administration of the US, and some European countries. Actually successive ruling dispensations including present one has made India ore dependent on China for imports.

According to the data of the Commerce Ministry, India and China traded merchandise of $3 billion in 2000, which increased to$72. 34 billion in 2013-14 and further to $89.71 billion in 2017-18 with China’s exports to India (at $76.38 billion) are sharply higher than India’s exports ($13.33 billion) with India having trade deficit of $63.05 billion. (One trillion is equal to 1000 billion while 1 billion is 100 crore or 1000 million).

However, it has declined to $ 87.071 billion in 2018-19. During the period, India’s two-way commerce with US aggregated at $87.95 billion. Start with the trade balance — China’s exports to India (at $70.319 billion) are piercingly higher than India’s exports ($16.752 billion).

Similarly, during fiscal 2019-20, the bilateral trade between China and India stood at $ 81.86 billion with China’s exports to India (at $65.26 billion) is sharply higher than India’s exports ($16.6 billion) with trade deficit stood at $48.66 billion. It means, in 2018-19, India has a deficit of $53.56 billion with China. In other words; India’s dependence on the Chinese economy can be valued at $53.56 billion in 2018-19 and $48.66 billion in 2019-20.

While the imports from China have moderately declined by 15 per cent since 2018-19 due to imposition of anti-dumping duties on some products, the dependence of domestic economy on Chinese imports remains high with direct contribution over 30 per cent of India’s aggregate trade deficit.

In 2018-19, India exported mostly a basket of primary goods to China, including organic chemicals ($3.24 billion ); minerals, fuels, oils, wax and bituminous substance like tar, asphalt, maltha, or gilsonite, ($2.85 billion), cotton/fabric (1.78 billion) ; ores, slag and ash ($1.22 billion); plastic articles thereof ($1.10 billion).

India’s imports from China includes electric machinery, electronic equipment and parts thereof ($20.627 billion), nuclear reactors, boilers, machinery and related parts ($13.383 billion), organic chemical ($8.59 billion), plastic and related articles ($2.722 billion), fertilizers ($ 2.053 billion), solar energy components and APIs (active pharmaceutical ingredients), the backbone of India’s pharmacy industry. Currently, 40 per cent of India’s imports are high-value-added products like electronic items, medical instrument, etc.

In the fiscal 2018-19, India’s total merchandise exports registered a 9.06 percent growth to hit a new high of $330 billion, surpassing the earlier peak of $314 billion clocked in 2013-14. India’s total imports grew at a much higher rate at 10.41 percent, amounting to $514 billion.  It means in 2018-19, China’s exports stands at $2.5 trillion ($2500 billion) as against India’s $ 330 billion in 2018-19. Similarly, in same period, China’s import stood at $2.1 trillion ($2100 billion) as against India’s $ 512 billion only.

When overall trade is considered, while China is basking in the glory of trade surplus of $ 400 billion, India is plagued by trade deficit of around $182 billion.  India has only 3.2 percent contribution to China’s exports while 0.79 percent to imports. It means, if India does not import from China, China’s export will be declined by only 3.2 percent. In retaliation, if China stops importing from India, India’s exports will be dwindled by 5.07 percent too.

Even as anti-Chinese sentiment gathers steam across the country, the hold of the dragon on Indian electronics market remains strong. Chinese sold electronics worth Rs 1.4 lakh crore in India in 2019. It included smart phones, televisions, smart bands, smart watches and laptops. This has been at the cost of Indian brands such as Micromax, Lava, Intex and Karbonn and MNCs from countries such as South Korea (Samsung and LG) and Japan (Sony). Chinese brand had 71 per cent share in smart phones, India 1.6 per cent.

It is not only Chinese electronics and engineering goods that have swamped India, but also medicines made in China. China has been steadily eroding India’s advantage in generic drugs because lack of our proper steps by government. The export of pharmaceuticals, especially generics and drug formulations, is one of India’s strengths.

India, over years has been importing on an average, 68 per cent of its entire supply of bulk drugs and drug intermediates annually from China, according to data provided by the chemicals and fertilizer ministry, in reply to a question in Lok Sabha. In the year 2019-20 (till March 2020), India is projected to have imported medical equipment worth Rs 4,559.73 crore from China.

India is not only dependent on China in trade but Chinese companies have invested heavily in India too. Chinese stake in Indian economy has grown not only through exports but also investments particularly in technology and infrastructure sectors. Officially, China’s FDI in India stands at over $2.34 billion.

However, China’s FDI has grown five-fold since 2014 and, as of December 2019, its cumulative investment in India exceeded $8 billion — “far more” than investments by other countries that share borders with India, according to the Chinese government. A Brookings India paper pegs the total current and planned Chinese investment in India at over $26 billion.

According to the Ministry of Corporate Affairs’ “Invest India data”, Chinese IT and tech companies like Xiaomi, Oppo, Vivo, and Huawei have secured 100 per cent FDI in contract manufacturing in India and have set up plants in Greater Noida, Andhra Pradesh and Tamil Nadu, while Chinese auto companies like MG motors, BYD auto, Colsight, YAPP Automobiles, among others, have been some of the companies that have grown quite fast in India over the last few years. According to the Ministry of Commerce, Chinese auto giant BYD Motors has been the biggest beneficiary of the government’s FAME scheme for supplying electric buses to state governments.

Chinese investments in Indian startups have been to the scale of $5.5 billion in the last five years ending 2019. Going by news reports, Alibaba, Xiaomi, Tencent, China-Eurasia Economic Cooperation Fund, Didi Chuxing, Shunwei Capital and Fosun Capital are some prominent Chinese arms that have invested in Indian startup firms’. Some of well-known Indian startup brands to have received Chinese investments include Paytm, Ola, Snapdeal, and Swiggy. Alibaba has invested in Paytm. China-Eurasia Economic Cooperation Fund and Didi Chuxing have invested in Ola.

India cannot stop importing or cannot impose import duty according to will as guided by WTO rule. However, India can impose anti-dumping duty as Chinese economy is not recognized as market economy. If India stops importing from China as advocated, China economy will not be affected much. Any ban could increase costs for Indian telcos, which would have to rely more on European firms like Nokia and Ericsson, as India has limited domestic expertise in telecom equipment manufacturing. India will also mull over the information and communications technology (ICT) strategy for 5G rollout in the country with Chinese companies ZTE and Huawei after the recent border dispute. This will destroy many jobs and push Covid-19 ravaged Indian economy further downward.

Trade deficit shows that India is not capable of producing for the needs of its own people in the most efficient manner in certain products. But US has also trade deficit with China and India too. It should not be matter of worry. At one level, no country is self-sufficient and that is why trade is such a fantastic idea. It allows countries to specialize in what they can do most efficiently and export that good while importing whatever some other country does more efficiently. India should try to produce more goods and export more which it can do with less cost. A major reason for that is India’s own inability to scale up its manufacturing prowess despite campaigns such as “Make in India” and “Atmanirbhar Bharat” and surge from imports has widened trade deficit.

Contrary to popular belief an overwhelming proportion of Chinese imports are in the form of intermediate goods such as electrical machinery, nuclear reactors, fertilizers, optical and photographic measuring equipment, organic chemicals etc. Such imports are used to produce final goods which are then either sold in India or exported.

Many sectors are dependent on China for imports such as smart phones, telecom equipment, pharma/API, electric appliances, medical equipment, auto components, solar power, textiles and accessories for many other Indian finished products. A blanket ban on Chinese imports will hurt all these businesses at a time when they are already stressed to survive, apart from dampening India’s ability to produce finished goods.

Cautious and careful approach is necessary while dealing with such emotional issues. India should plan how to become less dependent on other countries. For this, it has to produce qualitative goods at cheaper prices.

 

 

*The author is an Odisha-based eminent columnist/economist and social thinker. He can be reached through e-mail at [email protected]

 

DISCLAIMER: The views expressed in the article are solely those of the author and do not in any way represent the views of  Sambad English.

 

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