India wants to loosen reliance on China imports, but it’s ‘getting worse’

India wants to loosen reliance on China imports, but it’s ‘getting worse’

India’s trade with China is booming despite efforts to reduce dependency on its neighbor and bolster its own manufacturing base.

China’s exports to India rose 31% to US$89.6 billion in the first nine months of this year, compared with the same period in 2021, according to data from the China General Administration of Customs.

Indian exports to China, its biggest trading partner, according to Beijing, fell 36.4 percent in the same period, falling to $13.9 billion between January and September.

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Bilateral trade, meanwhile, is on track to surpass the previous high of $125.6 billion last year, and was valued at $103.6 billion in the first nine months.

“India’s exports to China are mainly raw materials, which are highly substitutable in the international market,” said Lin Minwang, deputy director of the Center for South Asian Studies at Fudan University.

“In contrast, China mainly exports manufactured products to India, and the advantages of Chinese products have been strengthened under the Covid-19 pandemic.”

Despite close economic ties, China and India, Asia’s most populous countries, have a long-standing rivalry that has erupted into clashes at various times over the past six decades along their 3,488 km undemarcated border. including the most recent deadly skirmish in the Galwan Valley.

Relations sank to their lowest point in decades after the border clash and stoked a wave of anti-China sentiment that led to boycotts of Chinese consumer goods.

Since then, India has cracked down on a number of Chinese telcos like Xiaomi and Vivo, alleging money laundering and tax evasion; proscribed more than 270 Chinese apps; and he stopped Chinese investments.

Many see the moves as an attempt to strategically disengage from China, while trying to take advantage of foreign investors’ efforts to diversify from the mainland by building their own manufacturing industries.

India has implemented various policies such as its Production Linked Incentive (PLI) scheme to reduce reliance on Chinese imports and boost local manufacturing. However, the dependence on imports has only increased.

India’s merchandise imports between January and September were valued at US$551.6 billion, of which China accounted for US$79.1 billion, or about 14 per cent.

Its trade deficit with China has widened to $75.7 billion, compared with $46.5 billion in the same period last year.

“India’s structural dependency on China is due to electronics and to some extent rare earth materials as there are not enough competing supply sources,” said Anil Bhardwaj, secretary general of the Indian Federation of Micro , Small and medium businesses.

“For example, Indian companies, especially [small and medium-sized enterprises] find machines and parts from China extremely competitive compared to Japan, South Korea or Taiwan.

“But it is also true that India’s structural dependence on China is not absolute. India can switch import sources, albeit at a cost.”

Ajay Sahai, director general of the Federation of Indian Export Organisations, attributed the drop in Indian exports to a slowdown in demand in China due to its zero-Covid strategy.

“There was a drop of around US$1.5 billion in our iron ore exports to China during April-August 2022, US$700 million in cotton exports and a significant drop in exports of copper, aluminium, plastics and paper in the same period. Most of these inputs were driven by domestic demand that has been affected,” he said.

Iron ore, iron and steel, raw cotton and cotton yarn were among India’s top exports to China last year, according to the Indian Ministry of Commerce.

In May, India imposed export duties ranging from 15 percent to 45 percent on iron and steel inputs to ease pressure on domestic manufacturers and stabilize prices, which also had a significant impact on exports.

China’s main exports to India include electronic components, computer equipment, telecommunication instruments and bulk medicines.

India implemented the PLI scheme in 2020 as a means of addressing this dependency by indigenizing the production of bulk medicines, electronics and telecommunications products, among others, and subsidizing their sale to make them competitive in global and domestic markets.

“The obvious target was Chinese imports. But nothing has happened in two years. In any case, [the dependence] it has gotten worse,” said Biswajit Dhar, professor of economics at the Center for Economic Studies and Planning at Jawaharlal Nehru University.

“You need an efficient production and innovation ecosystem to be globally competitive. That doesn’t seem to be happening.”

However, Sahai said the PLI scheme has been successful in the mobile sector, with Apple in particular changing part of its production for iPhone 14 from China to India.

“Electronics and machinery are likely to produce results shortly. Pharmaceuticals and bulk drugs are also likely to gain momentum,” Sahai said.

Indian industry leaders often complain that the country lacks market access in China for products and services such as pharmaceuticals and IT, in which India is seen as having a competitive advantage.

“Market access remains a key issue, although we have seen some improvements in recent years. India’s exports of grains and food products have increased,” Sahai said.

However, he added, “While the Indian pharmaceutical industry has gained respectability by supplying cancer drugs at very competitive prices, the approval process for Indian drugs is very cumbersome and time-consuming.”

In the pharmaceutical sector, product registration approvals by China’s National Medical Products Administration can take three to five years, while a typical timeframe is around a year, according to the export promotion council. Indian Pharmaceuticals.

“The IT industry also faces non-tariff and market access barriers as well as language problems,” Sahai said.

Perhaps most damagingly, Dhar said a trust deficit between the two countries is a major problem.

“Unfortunately, the prevailing tense political environment is also not helpful in building trust between Indian and Chinese businessmen,” he said. “So the trade gap remains.”

This article originally appeared on the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for over a century. For more SCMP stories, explore the SCMP application or visit the SCMP’s Facebook Y Twitter pages Copyright © 2022 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2022. South China Morning Post Publishers Ltd. All rights reserved.

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