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India should strengthen on indigenisation

India’s import dependence on China has increased over the years and it continues to be high. As the diplomatic ties between the two nations stand the test of times, experts warn that the choices based on sentiments are of limited value, as India will also end up getting hurt.

They point out that while Chinese manufacturers will lose business and margins. In India’s case, it will be the businesses if they absorb the increased cost or the consumers if the businesses pass on their cost increase to them. India needs to build value-creating and globally competitive businesses. Any other choice is a compromise.

Institute for Advanced Studies in Complex Choices (IASCC) co-founder Anil K Sood told Telangana Today, “India’s dependence on China has seen a surge over the years, particularly since 2013, though there has been a fall (of 2.6 per cent) during 2018-19. However, if we combine the trade with China and Hong Kong, we don’t observe a major change (a decrease of just 0.7 per cent) in China’s share of Indian imports. India’s share of exports to China (percentage of Indian exports) has fallen from 7.7 per cent to 5.9 per cent, a decline of 1.8 per cent. We observe a sharper decline in exports, if we combine Indian exports to China and Hong Kong, with a decline of 2.4 per cent.”

According to Dr Vikas Singh, president, Crux, “China has replaced our domestic production across 500 categories and 3,000 products, including mobile phones, toys and several sundry household products. Banning these won’t hurt us. China can impact India by denying key intermediates that ‘nourish’ our exports, undermining competitiveness. Sectors such as pharmaceuticals, automobile, electronics, telecommunications will be on their knees, spiraling bankruptcies. The cascading effect may wipe out 15 per cent of the profit making MSMEs, leaving millions unemployed. The consumers too will suffer. Banning cheaper imports could cause inflation, hurting the middle-class and denying cheaper consumables to the poor.”

Sectors with dependency
Top 10 import categories constitute (including electrical machinery, nuclear reactors and organic chemicals) nearly 80 per cent of imports from China, with a significant part of imports being intermediate goods, i.e., the goods used in industrial production. Imports for these categories have been growing faster than total imports from China, implying that the Indian industry depends on China for intermediate products and equipment used in its manufacturing process.

There is also a high dependence on China for intermediate goods and parts, particularly in electronics. Top four categories include telephone parts, personal computers, integrated circuits and solar cells. Sood said, “Given that Indian businesses and the government have not really invested in building intermediate products and components for electronics products, our dependence on China is nearly absolute. Consequently, there is very little that we can do in the short run, except to look for alternative sources of supply. And that would not necessarily make us self-reliant. It would shift reliance to other countries or partners.”

On the building material front, K Ravi, MD, NCL Industries, opined, “Since European technologies had become expensive, Indian businesses had been relying on China, which has brought down the cost of manufacturing and projects. We should look at indigenisation in India and also welcome technologies from Japan and Europe, by ensuring that there is no red-tapism in the country.”

“We are also importing relatively low value-adding commodities and intermediate products where the country has capacity as well as the capability to produce. For example, iron and steel, aluminum, and related products. Not to mention imports of chemicals and fertilizers. Such imports are largely driven by cost consideration,” Sood explained.

Path to self-reliance
In order to reduce India’s dependence on imports and specifically the imports of low value-adding intermediate products from China, the Indian manufacturing firms have to invest in building scale as well as efficiency. It would require the Indian firms to produce these intermediates and their final products at the cost levels close to their suppliers from China or elsewhere in the world. One has to remember that the Chinese suppliers are the lowest cost producers globally in many of these industries.

Sood noted, “If the Indian manufacturers are not able to produce these goods and commodities at globally competitive cost and the Government restricts imports or imposes tariffs on these imports, to make these manufacturers viable, the Indian consumer will have to pay a price. In current circumstances, with the households struggling to do well, it will probably not be the wisest choice. We may further end up hurting consumption growth. Investment growth has already collapsed.”

Satish Magar, president, Credai National, said, “According to government data, from March 2019 to February 2020, India imported $12.78 billion of capital goods from China, a large part of which is for the construction and interiors industry. India is dependent on China for a large number of goods such as kitchenware, ceramic, bathroom fittings, accessories, doors & windows, switches & electrical fixtures & fittings, LED lights and tiles besides other products. Chinese goods are 20-50 per cent less expensive, depending on what material is being sourced.”

Magar added, “India at present does not have a full range of goods, and its supply chain is disrupted due to the pandemic. Credai is encouraging its 250 plus allied industries to manufacture more goods in India and we will support them by placing orders.” Telangana Today

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