In the aftermath of the Galwan valley clashes and the COVID-19 pandemic, there has been a resurgent uproar for boycotting Chinese products. India’s dependence on Chinese manufacturing and products can be established by Chinese imports accounting for 65 billion of the 81-billion-dollar two-way trade. While the Government believes that this pandemic will act as a blessing in disguise for Indian manufacturing, as global corporations may choose India as their manufacturing hub, due to the pandemic. It remains to be seen how India will be able to support itself domestically by reducing its reliance on Chinese products.
China is India’s second-largest trading partner after the United States, accounting for almost 12 per cent of all the imports across sectors. China is the leader of imports in consumer electronics, pharmaceuticals, chemicals and capital goods. India imports most of its electrical machinery, semiconductor driven machinery and other manufacturing products from China. Whether these imported products can be avoided or not, is debatable, but for the time being, there are no alternatives for these capital goods in global markets.
India’s Dependence on Chinese Manufacturing
Another question that arises when it comes to decoupling the Indian market from Chinese products is the fact that almost every product has a Chinese input in its production. The most recognizable example would be that of Apple, which is based out of California, but attributes most of its manufacturing and assembling to China. Thus, there is a need for clarity as to what aspects of the Chinese produce warrant boycotting — (i) merely Chinese owned products, or (ii) all Chinese products (including Chinese manufactured products). The latter of which seems impossible to attain in the foreseeable future.
While India is being driven towards the road of economic nationalism, as indicated by the foreign policy in the last few years. There is an increased shift to the protectionist approach with the average tariffs on imports rising, the object of these policies has been to achieve indigenisation eventually leading to import substitution. Import substitution is not a practical solution to India’s problems, as it requires abundant resources and capital, to materialise. In its present economic condition, with India’s nominal GDP growth rate being the lowest, in the last 42 years, and the government having to ramp up the health facilities of the country, it seems unlikely that India will garner such volumes of resources and capital to effect import substitution from China. This will lead to a situation of unrest and confusion regarding the Indian market among foreign investors, given that the Indian Government, on one hand, wants Global corporations to integrate their supply chains with India, and on the other hand, they want to implement a protectionist approach to promote an Aatmanirbhar Bharat (Economically Self-Reliant India).
The Way Forward
The government’s ambitions of boycotting Chinese products at best can aim to achieve an import substitution worth 13 billion dollars by December 2021, as per the Confederation of All India Traders (“CAIT”), which is only one-fifth of the imports from China. There is no way that India can get rid of Chinese imports. While the imports are the visible end and can evoke patriotism, when viewed holistically, we realise that India is heavily dependent on China for its machinery for domestic production. Replacing these machines with Indian products is possible only in the long run, thereby making a complete boycott impossible.
The substitution of Chinese products is only possible through altering the purchasing behaviour of Indian consumers. Most imports from China entail consumer durable goods like idols of Gods, jewellery, toys, etc., that were earlier made in India. These products can potentially be replaced with Indian-made products, by placing the onus of manufacturing on MSME Industries. As domestic sales increase, the Indian manufacturers would improve their economies of scale, and eventually compete with China in the global market.
India might also make use of non-tariff barriers like quality standards under the General Agreement on Trades and Tariffs and Technical Barriers to Trade Agreement to greater effect to reduce Chinese imports. For instance, India uses quality standards against only 300 Chinese products, as compared to quality standards against the United States’ imposition against 6000 goods. This may be modified and made stringent to effect grater barriers. Further, India has already used the clause of reciprocity to prevent Chinese companies from entering the telecom and infrastructure sector of its domestic economy, and plausibly may use it in other sectors where Indian products have been denied entry to the Chinese market.
It is almost impossible to completely boycott Chinese products, but partially boycotting the products over intervals of time may complete the objective of promoting the domestic economy and reducing the dependence on Chinese products. We can start the boycott of Chinese products by boycotting Chinese software. India’s ban on 59 Chinese mobile applications, including Tik Tok, further emphasises the need to steer away from Chinese software, at the earliest. Chinese hardware products, including mobile companies like Oppo, Vivo and Xiaomi, which own a lion’s share of the market must be boycotted after, as and when alternatives for these products crop up in the Indian market. The sheer size and potential of the Indian market would attract other mobile sellers, thereby making such a boycott (envisaged by the CIAT) probable by December 2021.
In the case of finished non-essential goods, customers will be actively required to modify their purchasing behaviour to choose domestically manufactured products over Chinese ones. The textile industry is an example where such a change in consumer habits will be required to reduce dependence. Essential products, capital goods and raw materials can only be replaced through a systemic manner over the long-term. While the importance of this move can be understood from a political standpoint, the boycott on Chinese products entails grave consequences on the crumbling Indian economy, especially during an economic crisis.
Sirgapoor Sahil Reddy is a fourth year student at Jindal Global Law School.
Representational Image by Soham Sen, ThePrint