With the ongoing skirmishing along the Indo-China border that escalated to critical levels when it rendered 20 Indian soldiers dead in the clash at the Galwan Valley, China may currently be viewed as India’s biggest rival but the fact remains that it is the country’s major trade ally which accounted for 10.4% of India’s total trade with the world in 2019-20, second highest share after USA. As the nation calls for a boycott of Chinese products, the reality of ‘Atmanirbar Bharat’ is threatened by India’s import dependence on its difficult neighbour as only 5.3% of its exports headed for China while the latter constituted 13.75% of the Indian import pie leading to a trade deficit of ₹11,368.9 billion in FY19. The seesaw of trade between the world’s two emerging economies is titled gainfully towards China and despite the geopolitical tension brewing between the nations, the Chinese connection to Indian economy is indisputable.
Dissecting the trade pie
China’s manufacturing sector backed by low production costs and a thriving business ecosystem has led it to the title of ‘The World’s Factory’ and India has been no exception to the list of countries seizing the benefits of its output as its top imports in FY19 from the country consist of Electrical machinery and equipment(₹1352 billion) and Nuclear reactors, boilers, machinery and equipment(₹941.9 billion). Organic chemicals, plastic articles, fertilisers, automobile components and iron and steel are other commodities that make it to the top 10 imports. From clothing to toys, ceramics to furniture, paper to steel articles, the range of Chinese imports is diversified to the extent that it is not surprising to find products labeled ‘Made in China’ in almost all categories of Indian market. On the Indian end however, the exports to China are more on the resource side rather than manufacturing as organic chemicals(₹190.9 billion), ores,slag and ash(₹167 billion) and mineral fuels and oils (₹150 billion) constituted the top three export commodities to in FY19. While China is the lead importer for India alongside being the third highest export destination for its commodities, India does not make the cut to the top 5 import or export trade partner list for China.
Pharma Sector Backward Integration: A case of Over Dependence
Indian pharmaceutical industry prides itself on being the world’s third largest in terms of volume and thirteen largest in terms of value. Pharmaceuticals products are the sixth largest export commodity for India and yet these achievements are flawed by the volatility of this sector that comes from excessive dependence on Chinese imports of Active Pharmaceutical Ingredients(API). India imports 68% APIs from China which form essential raw material of medicines including ones for high disease categories like cardiovascular diseases, diabetes and tuberculosis. The reason for dependence can be attributed to the price factor as the cost of API production in China is 20-30% less than that in India. Such a reliability scenario puts national health security at risk and makes domestic pharmaceutical companies highly vulnerable with possibilities of supply disruptions and price overshooting as China calls the shots being the dominant supplier. An illustration of such was seen when global supply chains halted due to Covid-19 and consequently the price of mainstream antibiotics shot up by 50 percent as raw material supply from China paused.
Following the Doklam standoff in July 2017 which sparked debate on Chinese reliance, the pharmaceutical product import from China still flourished as it increased by 16.81% in 2018-19 and further by 12.2% last year. The low import substitutability given commercial causes clearly highlights that while self sufficiency may be the aim, the ground reality of Chinese dominance cannot be altered until long term steps are taken to encourage and boost domestic sourcing. Along the same line of thought, Government of India approved ‘Bulk drug parks scheme’ to set up three bulk drug parks with a budget of ₹3,000 crore and ‘production linked incentive (PLI)’ scheme for promotion of domestic manufacturing of 53 critical bulk drugs and intermediates in the country with a budget of ₹6,940 crore on 20 March 2020. These schemes however will take time to change the landscape and the Chinese hold on the pharma sector will continue to persist.
Smartphone Subjugation: It’s all about ‘value for money’
The leash of Indian smartphone market, the second largest in the world, rests with Chinese corporations as they account for more than 80% of market share as of 2020 Q1. Xiaomi(30%), Vivo(17%), Oppo(12%) and RealMe(14%) are brands that have penetrated the India households with their affordable price ranges for right quality value. The irony of the situation is such that while anger rose in the nation after the clash in Ladakh and while #boycottChina trended on Twitter, the OnePlus 8 Pro sold out on Amazon within minutes of its launch in India on June 18. The golden price-quality mix is yet to be cracked by Indian brands like Micromax and Lava which lack quality or by foreign brands like Apple which are not easy on the pocket and this lack thereof continues to power the Chinese smartphone supremacy. The status quo however, might change as the $4.5 billion collaboration between Reliance and Google can roll out a Jio-Google smartphone worth competing.
The entanglement of Indian sectors with China is not limited to the Pharma and Smartphone market. The degree of Chinese impact may vary but the presence is widespread. Automobiles Industry for example, imported 27% of their auto components from China last year, the highest country-wise only to be followed by Germany at 14%. Consumer sentiments may go against China but its incorporation into the economy is so deep that a car purchased of an Indian brand is likely to have a part manufactured in China.
In the digital space, as tech war rages, India recently went on to ban 59 Chinese origin apps citing sovereignty and integrity of India as concerns over issues of data mining and profiling emerged. The substitutability of such apps is high so such a move is not bound to have massive economic impact and can be seen as a retaliatory measure for political showmanship. Furthermore, as countries around the world are contemplating whether or not to allow Chinese Huawei 5G into their jurisdiction due to national safety concerns, Reliance Jio has come to rescue India’s self reliance with another ‘Make in India’ solution to servicing the 5G wave using 100% homegrown technologies, the outcome of which is yet to be seen.
Military standoff between India and China, two potential economic powerhouses of the world, does not reflect the nature of bilateral trade relations that the countries share. As per IMF June projections, in the backdrop of Covid-19 pandemic, India is bound to have a real GDP growth rate of -4.5% while the corresponding figure for China is projected at 1% in 2020. China and India however are expected to recover with growth rates predicted at 8.2% and 6% respectively in 2021. India’s dependence on its neighbour is an indispensable part of its growth and will continue to remain so until ‘Atmanirbar Bharat’ takes material form rather than being just an utopian idea.
Shalu is a masters student at Ashoka University and a Columnist at the Centre for New Economics Studies.