With the growing demand by politicians across the country to ban products made in China and focus on buying products that are made in India, the sentiments on banning these products are on the rise. However, the implications of such a ban on the Indian economy could be far from desirable.
Why boycott of Chinese products sounds good
According to the Haryana Health Minister Anil Vij, people should not purchase Chinese goods as they are having a negative impact on our country and that we should support the make in India campaign.
This would boost India’s economy as those products that used to be imported from China would now be manufactured in India. Hence, this would result in an increase in job opportunities in India. Moreover, the dependency on China for imports would reduce.
However, China is India’s biggest trading partner with trading worth about $70 billion. There is a heavy trade imbalance between the two with imports from China growing steadily by 5% over the last 5 years to $61 billion. This ranges from a wide variety of products such as cell phones to items such as Ganesh idols. In contrast, India’s exports to China are fairly limited and fallen from $18 billion to $9 billion in the last 5 years.
This imbalance means India is fairly dependent on China for its imports. According to a report by Boston Consulting Group, China provides India with about 90% of the raw materials required by the pharmaceutical industry. The dependency is so high on the Chinese imports that its import grew by 11.5% even as India’s global trade reduced by almost 20% during the global slowdown during 2011 and 2016.
China accounts for 96 percent share of imports of truck and bus radial tyres. Over the last three years, the imports have increased by 7 times to 4.2 lakh units in Q1 2016.The dealers are against any ban on imports or imposing a new duty as they feel the tyres by local manufacturers are overpriced.
Moreover, China was referred to as the ‘world’s manufacturing powerhouse’ by former RBI governor Raghuram Rajan and according to National Bureau of Economic Research, “India has failed to match its neighbour in this process”. Also, another reason is the ease of availability of Chinese products in the market which are cheap and of good quality and are available in bulk. This poses a problem as the Indian products are relatively expensive and it is much more difficult to find a dedicated market for all types of consumer durables.
The implications of banning Chinese products would be as follows:-
- India is heavily dependent on Chinese imports and any weakening of trade ties between the two countries will substantially hurt Indian businesses.
- China may in turn stop Indian exports to China which would significantly affect India as exports to China is a significant part of Indian exports as it accounts for more than 8% of all Indian Exports.
The way forward
Rather than banning Chinese products, greater access to Indian goods in the Chinese market will help India and better the trade imbalance. Also, India should focus on which Chinese products are essential. There is also an assumption that Chinese imports are economically more competitive than products made in India which has also been challenged. According to a study by SK Mohanty, it was found out that the pricing of one-third of the products imported by from China in 2012 were relatively uncompetitive.
According to the report, “India is likely to gain from its engagement with China, provided cautious approach needs to be pursued to restore long-term interest of India from its bilateral economic engagement”. For this to happen, India needs to restructure its domestic and external policies to ensure effective partnership with China.
Hence, India should focus on exporting more to China to counter the trade imbalance and strengthening the Make in India Campaign.
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