Boycotting China is easier said than done: Why customers will be at losing end in bid to tame Dragon – The Financial Express

Clipped from: https://www.financialexpress.com

Of course, with structural reforms and appropriate policy interventions in areas ranging from pharmaceuticals to mobile and auto parts, the domestic industry can build capacity, but that will be a longer term proposition.

Taking economic retaliation against China for its aggression along the border is easier said than done. A surge in domestic sentiments against Beijing for the fatal border skirmish has led to fervent calls for a boycott of the Chinese goods but given the over-reliance of Indian consumers and large sections of industry on the hostile neighbour, these might just ring hollow.

Any policy change to tame the dragon by discouraging the consumption of its usually cheap products is fraught with the risk of raising costs for consumers, at least in the short term. For instance, after the pandemic broke out, the prices of many active pharmaceutical ingredients have increased anywhere between 6% and 167% (the highest is for Nimesulide) since January, as Chinese supplies got hit.

To be sure, despite the conflict that has claimed the lives of 20 Indian soldiers, the government hasn’t yet formally denounced Chinese goods and only private bodies, like the Confederation of All India Traders, have called for boycotting such products.

China makes up for about 45% of India’s electronics imports, one-third of its machinery and almost two-fifths of organic chemical purchases. As much as 90% of certain mobile phone components, 65-70% of active pharmaceutical ingredients (for making finished drugs) and over a fourth of its automotive parts and fertilisers are imported from China, according to a CII note prepared in February to assess the Covid-19 impact. China, as such, remains the largest import destination for India and Beijing’s goods trade surplus with New Delhi was as much as $47 billion in the first 11 months of FY20.

Also, industry executives say China makes up for about 72% of the Rs 2-lakh-crore domestic mobile phone market and Chinese brands like Xiaomi dominate here. Even Chinese or some Indian firms assembling such products in India import components from China. In the telecom equipment market, the share of the Chinese is about 25%. Since there are several Amercian and European vendors also in this segment, boycotting Chinese vendors is possible but telecom operators could see an up to 15% increase in their procurement prices. Also, the Indian operators will lose the attractive financing provided by Chinese vendors.

The Chinese account for about 45% of the Indian smart TV market and such products are 30-50% cheaper than the items sold by their rivals.

Of course, with structural reforms and appropriate policy interventions in areas ranging from pharmaceuticals to mobile and auto parts, the domestic industry can build capacity, but that will be a longer term proposition.

Vinnie Mehta, director-general of Automotive Component Manufacturers’ Association, said: “The imports from China cannot be replaced so soon, but the value chain can be created in India, given our skills, quality and capabilities. So, the Indian auto parts industry can bring down the dependence on China, which accounts for about a fourth of India’s annual auto parts imports of $18 billion. Indian exports to China in this segment, however, are only about $300 million annually.”

B Thiagarajan, MD of air-conditioning major Blue Star, told FE that China is the biggest component supplier. “Now, the Atmanirbhar initiative is taken by the government to enable even component makers to become self-reliant. But all these will take time.”

“The government is chalking out strategies to promote indigenous production with new policy interventions and reduce import dependence,” said R Uday Bhaskar, director general at Pharmaceutical Export Promotion Council (Pharmexcil).

Srivats Ram, MD of Wheels India that makes steel wheels for passenger and commercial vehicles, said the global supply chain, in which China plays a dominant role, is getting realigned. “Companies have been looking at de-risking the global sourcing. Existing customers may look at realigning their procurement to derisk their business. And this could throw up opportunities for Indian companies.”

However, for heavily import dependent solar industry, cutting off ties with China would lead to considerable challenges. “Even now, bidders take into account the lower cost of imported solar modules from China to quote tariffs. To reduce India’s import dependence, more manufacturing-linked solar tenders (like the one recently awarded to Adani and Azure) need to be awarded. But even that will take time to operationalise and need significant capital investment,” Amit Kumar, partner, clean energy, at PWC, pointed out.

“When it comes to global supply chain in the domain of electronics manufacturing, China is the one inseparable link. There is some component or process of virtually all products which every electronic manufacturing country in the world is dependent on China. If India decides to stop imports from China, the production will be impacted,” George Paul, CEO, Manufacturers’ Association for Information Technology, said.

“It is no secret that a substantive part of India’s supply chain has its roots in China. Efforts are underway to enhance self-dependence. Meanwhile, we remain confident that the Indian and Chinese leadership will find a lasting resolution out of the current border impasse. We remain hopeful of peace without compromising India’s strategic priorities,” said Pankaj Mohindroo, chairman of the India Cellular and Electronics Association.

Kamal Nandi, business head & executive vice president of Godrej Appliances, said: “For the next 2-3 months, there is enough stock of components and parts for consumer electronics and though there will be disruption in long term, it can be mitigated with alternatives available. The impact on prices is not known because the industry has to see what cost impact would be there while importing from other countries.”

However, a section of domestic engineering industry is not perturbed even by the prospect of reduced imports of inputs from China. S Unnikrishnan, MD & CEO at Thermax, said: “There will be temporary blip in any case but none of us are in dire need of materials from China. There is capacity and capability available in the country. There may be some items on which we are dependent because of lower prices, but that also we can progressively manage internally.”

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