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).
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”.
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.
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.