Ever since the intrusion of the People’s Liberation Army (PLA) into the Indian territory of Galwan, there has been a rising sentiment among the Indian public against the widespread use of Chinese products. Social media posts urging people on boycotting Chinese products and mobile apps, have been vehemently circulated. Debates have been plenty as to whether such a boycott is really possible but we want you to dive deeper and understand the nitty-gritties of the issue.
The Trade Imbalance:
To start with, let’s take a look at the total imports from China to India. India’s largest supplier of products is China, constituting 15.4% of total imports made by India. In terms of value, the imports amounted $ 74.72 billion in 2019. Whereas, India’s exports to China amounted to $ 17.95 billion. The major reason for a such a massive trade deficit is the cost of Chinese products which is quite low as compared to locally manufactured products. The Chinese companies get subsidies to the extent of 17% on exports from its government, which makes their goods cheaper than Indian goods despite the import duties charged on them.
Is Boycotting Chinese Products so easy?
Now let us focus on the type of products that we import from China.
It can be seen that electrical and electronic equipment, machinery and mechanical appliances and organic chemicals constitute about 59% of the total imports from China. With the help of an anecdote, we will understand the (side) effects of boycotting Chinese goods.
Mr. Desh wants to buy a car but insists that none of its manufacturing components should be imported from China. He goes to ABD Ltd, a car manufacturer with his demand. Now, the treasury manager of the manufacturer sits down to do the cost calculations. The components manufactured in China are on an average 10% cheaper than those manufactured elsewhere and after adding the government subsidy, the total discount that we get is roughly 27%, she says to herself. So, if the braking system costs $100 in China, it will cost $ 127 elsewhere on an average.
Let us assume that the manufacturing cost of a sedan is about ₹ 6 Lakh. About a quarter of total auto components are imported from China, which implies that the cost of components imported from china is ₹ 1.5 lakh. If we decide to import the components from any other country, the cost is likely to be 27% higher, which amounts to ₹ 1,90,500. The cost is higher by roughly 40,000 rupees. This is just the cost of manufacturing. If we add the cost of distribution, profit margins of manufacturer and distributor then the ex-showroom price will be way higher.
The treasury manager explains all this to Mr Desh. Embarrassed, Mr Desh returns to his home, cursing himself for not being able to accommodate the additional price in his budget.
Related: Take a look at the Indian Startup Ecosystem: Showing the prevalence of Chinese investments
So, the moral of the story is that if we stop importing from China immediately without developing the supply chain within our country, the cost of manufacturing for various products will increase significantly. Which will further decrease the purchasing power of people which will eventually reduce consumption. Consumption accounts for 60% of the Indian GDP; any slump in demand will result in stunting of GDP growth. Rising prices of goods will also make Indian products uncompetitive in the international markets, negatively skewing the balance of payments.
Overall, the profitability of the Indian businesses will take a hit and FDI inflows will be impacted due to the same, which will stress forex reserves and depreciate the rupee. Doesn’t that sound horrific and far-fetched? But that’s how an economy works.
Don’t be scared yet, I have another anecdote to tell. This one is about Mr. Prem who went to an electronics goods and services store. He was very insistent about an entirely locally manufactured TV. The proprietor of the shop kept explaining that there isn’t such a TV on sale but Mr. Prem kept on pressing. So, the proprietor took out his tool kit and started opening a TV. Then h took out transistors and some other components from it and reassembled the TV. The proprietor said, smiling, “here is your TV with components sourced locally”, Mr. Prem returned home fuming.
The moral of this story is that entirely locally manufactured products are rare. Since the world is connected, and every product forms a part of the global supply chain. Telling apart products that have Chinese components is extremely difficult.
The Capture of Indian Markets:
Now we will move on to the share of Chinese products in the Indian marketplace and what better way to start than with smartphones. Xiaomi, Oppo, Vivo, Realme and OnePlus rule the smartphone market with a 72% share. That’s disheartening but true, and when it comes to solar power we are at the mercy of Chinese products as they occupy 90% of the market in this sector. Pharma is another sector which is dominated by Chinese manufacturers with a 60% market share.
Our dependency on China in these sectors is significant, and in some sectors such as solar power, it is even threatening.
But we are not done yet.
India’s trade relations with China are extremely deep. The Indian digital space too hasn’t remained immune to the captive nature of Chinese businesses. About 66% Indians use at least one Chinese app. TikTok is the undisputed king of Chinese apps. According to latest estimates, it has approximately 200 million monthly active users out of which some are even able to earn through their content. It is also a marketing platform for several businesses. Many Indian apps have come and gone, failing to compete with TikTok.
Even some utility apps such as Cam Scanner and UC Browser feature in the list of most used Chinese apps. While it is relatively easy to uninstall an app, the entire purpose of it is lost when 72% of smartphone users own Chinese brands.
Related: Take a look at the growth of TikTok: from global sensation to a perceived threat
Mr Desh and Mr Prem’s desire to slay the dragon is understandable but given the nature of the global economy, India cannot boycott Chinese products immediately as the costs of doing so are massive and we cannot afford them. A gradual decrease of dependency on Chinese products, through infrastructure development and incentives for entrepreneurs, is required and we hope that all of our work towards building a self-reliant India. Maybe, the first step towards promoting local entrepreneurs could be subscribing to CaseReads’ newsletter, here?
The piece was put together by Shivam Ghule, drop a thanks when you can to our Finance Tolkein!
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