New Delhi: India has been working on policy measures to restrict the entry of Chinese imports as well as investments long before the deadly clash between the countries’ armies at the Galwan Valley along the Line of Actual Control, and even the Covid-19 outbreak. But the pandemic and Monday’s incident in Ladakh, in which 20 Indian soldiers were killed in action, have only accelerated the process, ThePrint has learnt.
The Narendra Modi government has been working on a white paper ever since it walked out of the Regional Comprehensive Economic Partnership (RCEP) agreement last year, multiple sources said.
“In the absence of a demand stimulus, increasing tariffs on imports is the only option as ‘low-hanging fruit’ in the immediate term. A multipronged strategy is being looked at, and the exercise has been going on for quite some time, since India refused to be part of the RCEP. The LAC incident has only pushed the process,” a top official source told ThePrint, refusing to be identified.
In the immediate term, the official said, the Modi government is looking at increasing tariffs on a range of products — from electrical and electronic equipment to the medical and diagnostic sector — as well as putting curbs on importing active pharmaceutical ingredients (APIs) from China. India is the world’s largest hub for the manufacture of generic drugs, but imports almost 90 per cent of APIs from China.
“There will be a greater push towards localisation. Exporters in labour-intensive sectors such as textiles, gems and jewellery, and footwear will be asked to sell their products in the domestic markets, as their sales in the international markets have almost come down to zero,” the official said.
India exported goods worth $16.75 billion (around 1.27 lakh crore, according to today’s exchange rate) to China, but the bill for Chinese imports was $70.31 billion (nearly Rs 5.35 lakh crore at today’s exchange rate) in fiscal 2018-19, resulting in a trade deficit of nearly $54 billion (Rs 4.11 lakh crore), according to the latest available data from the Ministry of Commerce and Industry. Sources said if services trade is also taken into account, the trade deficit would shoot up well beyond $60 billion (Rs 4.56 lakh crore).
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Overnight changes not possible, but will support govt decision
Vikram Kirloskar, chairman and managing director of Kirloskar Systems and former head of the Confederation of Indian Industry, said the economic dependency on China cannot be reduced overnight.
“The situation will be different sector-wise. It will take time and cannot be done overnight in some sectors. I don’t know how much can be done immediately,” Kirloskar told ThePrint.
“However, the government has to come out with a clear policy on import reduction and a comprehensive plan on how to substitute the supply chains. Simultaneously, it has to also ensure that it makes India as competitive as China with all sort of liberation of sectors and policy changes. This can be done fairly quickly with all stakeholders on board from the Centre to the state governments to the labour unions,” he said.
Kirloskar added that reducing the dependence on China should also translate into a “policy overhaul to make India a highly competitive market”.
“Both can be done at the same time with focussed and targeted policy actions. We will fully support the government in whatever it does as geopolitical changes take place,” he said.
“But we need to be realistic and keep the industry secure and competitive in the long term,” Kirloskar stressed, adding that even though his company’s Japanese joint venture, Toyota Kirloskar, has minimal inputs coming from China through sub-suppliers, it is still “tracing the supply and checking on alternates”.
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Further restrictions on Chinese FDI
Sources said the government is also looking at tightening Chinese investments coming into India further under foreign direct investment (FDI) rules, despite putting restrictions in April.
However, a second official told ThePrint that it will be difficult to put a complete stop on Chinese investments, as they get routed through other countries, and it will also not be feasible for the larger health of the Indian industry.
According to a report by Mumbai-based foreign policy think-tank Gateway House, China has entered the Indian market through venture investments in start-ups and online ecosystem in a big way. Over five years ending March 2020, 18 of India’s 30 unicorn start-ups are now Chinese-funded.
TikTok, a video app, has 200 million subscribers and has overtaken YouTube in India. Alibaba, Tencent and ByteDance rival the US penetration of Facebook, Amazon and Google in India. Chinese smartphone brands like Oppo and Xiaomi lead the Indian market with an estimated 72 per cent share, leaving Samsung and Apple behind, the study said.
“In India, China’s tech giant companies and venture capital funds have become the primary vehicle for investments in the country — largely in tech start-ups. This is different from other emerging markets where Chinese investments are mostly in physical infrastructure,” the Gateway House study said.
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Must plan for the long term
India has begun cancelling contracts given to Chinese companies, such as one for railway signalling, while the Confederation of All India Traders (CAIT) has called for a national campaign to boycott Chinese goods, and came down heavily on the Maharashtra government Friday for allowing awarding contracts worth about Rs 5,000 crore to three Chinese firms under the Magnetic Maharashtra 2.0 programme.
However, Biswajit Dhar, trade economist and professor at the Jawaharlal Nehru University, said India should avoid any “knee-jerk reaction”, especially when its economy is facing massive challenges with a plummeting GDP.
“One cannot do things in a hurry; cannot plug and play. (India-China) talks have been on since (the 2017 stand-off in) Doklam, but nothing was done, and we were almost signing the RCEP last year. So, there has been no seriousness to ramp up the manufacturing sectors. Now, push has come to shove after we lost 20 soldiers,” Dhar said.
He added that raising tariffs would lead to higher prices for consumers because China happens to be the only country that can supply the things Indians need.
“We cannot follow the Americans. Even they had to do a deal with the Chinese,” Dhar said, referring to the US Commerce Department allowing American firms to work with Chinese telecom major Huawei earlier this week, an issue that was one of main reasons for the trade war between US and China.
Jayant Dasgupta, India’s former ambassador to the World Trade Organization, concurred. “We have to plan for the long-term and we would need to support and give subsidies to our industry as well as step up our indigenous R&D in core areas. Even China did that. In the short-term, we have to strategise,” he said.
“If there is a people’s movement to abruptly stop buying consumer goods, the government cannot help it. But if we stop importing essential intermediate products and components for which suitable alternative non-Chinese suppliers are not available, it becomes an issue for the Indian industry at large. So, India has to plan pragmatically to take trade measures against the Chinese,” Dasgupta added.
Also read: Ladakh conflict does little to hurt sales of Chinese phones in India
This is all bunkum!
If Chaiwala is serious – ban all PRC imports !
Y hike import duty or impose ADD/CVD or use Safeguard Duty or Technical Barriers to Trade ? dindooohndoo
That will add to Indian Input Costs,and bankrupt several industries,and then the banking !
If PRC exports to India,are USD 100 Billion and duty is hiked by 20% – then 20 billion USD of profits,of Indian companies are gone.In addition,the supply chain of those user industries (of Chinese inputs),will also be wiped out,on upstream (suppliers of materials and inputs to Indian entities, which import Chinese materials) and downstream (users of Indian products made, from Chinese inputs) as they will either not offer cost reductions,or not absorb cost hikes !
On a duty hike of 20%,on Chinese exports,to India of 100 Billion – at least 150-200 Billion USD of Indian entities will be destroyed – asssuming a material sales ratioj of 50%.Add to that the impact on the upstream and downstream supply chain – which is another 150-200 Billion USD.If 400 Billion USD of Indian sales are wiped out – it is safe to assume that the Debt to Sales ratio is say 0.25:1,and so USD 100 Billion of bank and other debt will be NPA.
Then you come to the retail imports – phones,Tvs,Toys etc.That will wipe out the entire retail trade as INDIANS WILL NOT PAY HIGHER PRICES OF INDIAN SUPPLIES.That is disaster in the unorganised finance market – Nidhis/NBFCs/Chit Funds – all will go bust.This will also impact the unorganised working capital credit to SMEs.
Y not also impose an Export tax on exports to PRC. Again a dead end – as PRC will import from elsewhere.
Y not ban Chinese flag ships from Indian Ports – No problem – PRC will do the same from PRC and HK and some African Ports.
Y not ban PRC from all infrastructure projects ? Sad ! All Indian Infra companies are bankrupt – including those making toilets !
India needs PRC.
PRC could short Indian paper and securities,in the NASDAQ/NYSE or short the INR,in the NDF or just kick out the Indians,from HKSAR – now PRC.It Could also kick out the Indians from many nations in Africa – Idi style ! I pray for Idi !
It is certain that PRC will use the Taliban and Pakistan,based marine/maritime outfits – in the next phase.The Problem with the Indians,is that they THINK that they have the PRC jugular – In Malacca and the shallow waters,in the waterways,through Malacca,which can spot PRC Nuke Subs and Diesel Subs.
Sweet Dreams are made of this !
India has no options ! The PRC will now enter the whole of the North East
India cannot handle Nepal – they could not stop them from changing a map – how will they handle PRC.Indians still have not perfected the art of making galvanised steel – how will they re-take Galwan ?
Just handover Ladakh,Sikkim and Arunachal to the PRC
And then back to Cow piss Cola !
In the next phase,I expect PRC to use Tibetans in the PLA on the Indo-Chinese border and the Nepali midgets on the Indo-Nepal – to turn the Tibetans and Nepalis against India and Indians
The Mongols are the master race of South and East Asia – that is a historical and scientific fact !
The Galwan Valley incidence should serve as a warning signal. It points to the fact that China is not our friend, if not our enemy; it is definitely our adversary. The threat from the adversary is not military, but something else. I doubt how many politicians in India have understood the true nature of our adversary. Please refer to Michael Pillsbury’s famous book , “ The Hundred Year Marathon”. According to the author, China was never a communist country. The only ideology it has is the rabid, aggressive nationalism with the ulterior motive of replacing the USA and attaining the status of the sole global superpower. The Chinese mindset is inherited from its 500 years history from 725 B.C to 225 B.C. , called the’Warring States era’, when China was divided into seven states, always fighting with each other. Deception, intrigue , inducing complacency to avoid alerting the opponent, manipulating the opponent’s advisers, be patients for decades or even longer to achieve victory are some of the facets of the stratagem used during this period. China has followed this strategy and has come within a striking distance of attaining the superpower status.
The question is how to deal with such a nation, which incidentally also our neighbour. It is futile to expect benevolence and fairness from such an adversary. We forgot the lesson of 1962 and invited China to join our economic growth story believing that China has good intentions towards India. Now this trust has been belied. However, in the meanwhile China has made deep inroads into our economy and it would become extremely difficult to extricate ourselves from the Chinese economic siege. This is the nature of slow and patient economic invasion by China. Our dependence on Chinese imports has grown to extremely unthinkable levels. To stop these imports now would amount to cutting our own supply chains and this would immensely hurt our economy. This virtually makes us a subservient vassal of the Chinese economic superpower. Both Congress and the BJP should bear the blame for this phenomenon. For decades our politicians from Nehru to Modi got fascinated with the idea of improving ties with China at any cost. At least now we should wake up from the slumber and employ a well thought out long term strategy to reduce our economic dependence on China.