- This shows how far an average Indian is from an average Chinese or American. That is why economists repeat it ad nauseam that India has to grow rapidly for several decades at a stretch if it wants the average level of lifestyle to reach anywhere close to the developed world.
Will boycotting Chinese products harm India more at this stage ?
Hurt by China’s aggression, several Indians, including many in the government, have argued in favour of boycotting the use of Chinese products. However, for a variety of reasons, this strategy, while targeting China, is likely to hurt India far more.
- For one, contrary to perception, India imports a lot of intermediate goods from China, and stopping that trade will affect our ability to produce finished goods. The Indian Expressfound companies across import-dependent sectors such as automobile, pharmaceuticals, electronics, telecommunications, etc. claiming that any move in this direction could be counter-productive, impacting the overall competitiveness of the Indian manufacturing sector and undermining our competitiveness to export.
- China accounts for around 14 per cent of India’s imports, with major items in the import basket being components for smartphones and automobile, telecom equipment, plastic and metallic goods, APIs, and other chemicals.
- Automobile and pharmaceuticals companies have invested deeply in building a supply chain that traces back to China significantly and disrupting that supply chain could adversely affect their competitive situation in the export segments. For companies in the telecommunications and electronics segments, the disruption could come from the lack of domestic manufacturing capabilities and significantly higher input costs.
- Around 68 per cent of the $3.56 billion bulk drugs or APIs imported were from China in 2018-19. There are many examples of medicines like paracetamol, cephalosporin and penicillin, for which we do not currently produce intermediates
What is the way forward?
- The path to overcoming our dependence on Chinese goods — or for that matter, imports of any other country — requires Indian policymakers and businesses to put in real hard work and not resort to lazy solutions such as banning trade or raising tariff barriers.
- The first thing to understand is that India’s poor share in global trade, especially on goods, is a reflection of our acute lack of competitiveness. This is the harsh truth but far too often, instead of accepting this reality, policymakers have blamed India’s stagnant exports performance on weak global demand.
- An analysis by HSBC in late 2016 showed that weak global demand explained only 33% of the slowdown in Indian exports. The biggest culprit were “domestic bottlenecks” — explaining 50% of the slowdown. The remaining 17% was blamed on an overvalued rupee (See Chart on reasons for poor exports below).