"Cheen ko Jawaab, Sena degi bullet se, Naagrik dengey wallet se"
Sonam Wangchuk, the person who inspired the “3 Idiots” movie, posted this viral message on Twitter encouraging the citizens to drop the use of Chinese software "within a week", There’s a 'Remove China Apps' app in the Google App Store, which has already crossed one million downloads in less than two weeks since its launch in May 17, 2020. And this anti-China sentiment played its part in helping drop TikTok’s ratings in the Google App Store from 4.7 to 1.2.
However, is it really possible to dis-entangle India from China’s stranglehold over global trade? Let us explore India’s fascinating relationship in China in this piece.
Snap to the present for a reality check
While geo-political tensions are still present, India has developed a very close economic relationship with China, especially in terms of trade and capital flows.
India’s Product Import from China stands at $76.87 billion in 2018, 14.6% of India’s total import in 2018, more than twice of its next partner, USA. While India’s exports to China stands at $18.83 billion, the trade deficit of $56.8 billion and rising, constituting 60% of the total bilateral trade has been a constant concern for India - the biggest trade deficit China is running with any country. While restrictions in accessing markets have crippled India’s capability to increase exports to China beyond raw material based commodities such as cotton, precious metals, and seafood, China has been able to step up exports of machinery, power-related equipment, telecom, organic chemicals, and fertilizers.
The dependence on China is especially egregious in certain sectors.
● India’s pharmaceutical sector depends on China for importing 67% of active pharmaceutical ingredients (APIs) used to develop generic drugs.
● 84% of the solar requirement of the National Solar Mission is met through imports from China.
● India gets about 50% of its diammonium phosphate (DAP) requirements from China. DAP is crucial for India’s farmers who use the fertilizer to boost yields on crops such as rice, wheat, sugar cane, and cotton.
● Imports from China are critical for sectors such as telecom components and electronic instruments. Chinese mobile handset companies Xiaomi, Vivo, Oppo, Realme and OnePlus occupy 72% of the Indian mobile handset market.
● Medical devices like ventilators also rely on imports of several crucial components like solenoid valves and pressure sensors from China
● While local dyestuff units in India are heavily dependent on imports of several raw materials, specialty chemicals for textiles like denim are also Chinese imports.
And after all this, India only accounts for 2% of China’s exports.
While China has been able to extend its clout in other countries through investments in physical infrastructure, cumulative Chinese investment in India till the end of September 2019 only amounted to $5.08 billion (leaving aside investments through Hong Kong and Singapore). Chinese companies such as Shanghai Electric, Harbin Electric, Dongfang Electric, Shenyang Electric are involved in EPC projects in the Power Sector. IT and hardware manufacturers such as ZTE, TCL and Haier have set up shop in India. Chinese automakers have invested $575 million in India through BYD, Volvo and MG Motors to tap into the world’s fifth-largest auto market.
However, Chinese companies have been able to make an outsized influence in the technology domain through venture investments in start-ups. Chinese tech investors have put an estimated $4 billion into Indian start-ups, investing in 18 of India’s 30 unicorns. VC funds, such as CDH Investments, Hillhouse Capital, SAIF Partners, and Ward Ferry and tech companies, such as Alibaba, Tencent and Xiaomi have invested in Ola, OYO, BigBasket, MakeMyTrip, Byju’s, Policy Bazaar and PayTM, to name a few.
So... uninstalling UCBrowser and ShareIt won’t help us become #atmanibhar?
While coronavirus has exposed the global dependence on China and governments around the world have already started taking measures to reduce their reliance on it, the task is much easier said than done. To manufacture some of the key products that India imports require huge capital investments, a high degree of policy certainty, lower input and logistics cost, infrastructure support and lower taxes. China has spent 40 years perfecting the ecosystem to embed itself into global supply value chains - a mantle that cannot be passed on just through short term interventions. Is looking inwards to invest in inefficient production processes a prudent allocation of capital, when most businesses are starving due to lack of funds? Can India produce good quality goods for the average price-conscious consumer at the same rock bottom prices as China?
Wait, didn’t we hear similar arguments in 2014 during the grandiose launch of “Make in India”? Instead of India transforming into a global manufacturing hub, the World Bank estimates that between 2014 and 2018 manufacturing declined marginally, from 15.1% to 14.8% of India’s GDP.
Therefore, instead of using ultra-nationalism to gain legitimacy among the masses, which ironically is reducing India’s ability to negotiate and prosper on a global stage, The Indian government should use this opportunity to woo companies that are seeking to reduce risk by diversifying away from China, by overhauling its policies. India is already struggling to keep pace with Vietnam and Thailand which have come up as attractive manufacturing destinations in SE Asia. A recent study by Nomura found that of 56 companies that relocated production from China between April 2018 and August 2019, only 3 chose India and early 50% went to Vietnam. Instead of relying on protectionism, can India introduce reforms to improve the skill level of its workforce, liberalize trade policies, reform land acquisition policies and labour laws to create a business-friendly environment?
Only time will tell.
About the Author: The post is written by our EZPP Partner Abhirup Roy with relevant edits from our editorial team. Abhirup is a graduate from IIM Ahmedabad and works with Zolo Stays.