India's avoidable import dependence on China

Written By: N S Venkataraman
Chennai Published: Jun 22, 2020, 01.28 PM(IST)

File photo. Photograph:( Reuters )

Story highlights

India has to confront China on several fronts including and that includes trade as well 

Whether the government of India would admit or not, it is crystal clear that India is facing a war-like situation with China today.

The most important thing that India needs to do now is to convey a firm impression to the Chinese government that India would not buckle under pressure and military threat. Certainly, this is what many countries in the world, who understand the tactics of China and are concerned about it, expect from India today. 

Obviously, India has to confront China on several fronts including trade and economic front. While China has created huge capacities in several industrial and commercial sectors, the fact is that China is excessively dependent on the world market for its industries to operate at the economic capacity utilisation level,  by marketing their product internationally. This is the area where China has to be confronted.

Also Read: What should India do now to fight China's provocations?

US President Trump has understood this and that is why he initiated the trade war with China, which is getting silent approval from several countries. Very few countries criticise the US for its trade war moves, which has made the Chinese economy weaker, though not still weak at an alarming level.

It is high time that India too needs to start a trade war with China. While there is a high level of clamour amongst the cross-section of Indians to ban the import of goods and services from China, some “experts” have been stating that the ban on import of goods from China would nearly paralyze the Indian economy too. This view is certainly not based on facts and not based on a clear understanding of the ground realities in India.

In the year 2019, China’s exports to India was $68.3 billion, while India’s exports to China was much lower level at $17.1 billion, largely consisting of minerals and natural products.

Of these above exports by China to India, drugs and drug intermediates constitute around  65 per cent of the total import of bulk drugs and intermediates by India from various countries. Most of these import of bulk drugs and drug intermediates are avoidable, as India has enough capacity. For example, the number of units in India has capacities for the production of several drugs such as Ibuprofen, paracetamol metronidazole, and still India import from China leading to underutilisation of capacity in India.

Also Read: China is learning the limitations of its will to power

In the same way, India has adequate installed capacity for several chemicals and even such chemicals are being imported from China. Several examples can be readily pointed out.

India imports around 1 lakh tonne per annum of citric acid from China and India was producing citric acid and then closed its plants due to import dumping from China.

Several Indian units such as Hindustan Antibiotics, Torrent Pharmaceuticals, and others were producing Penicillin G earlier and all of them have closed operations due to import dumping from China and now India is largely importing from China.

Why is this situation? The reason needs to be understood and tackled.

India is importing several pharmaceuticals and chemicals from China, not due to lack of production capacity or technological capability but Indian buyers are tempted by low prices offered by Beijing and also because it provides liberal credit terms of as much as six months to the Indian buyers from the date of Bill of Lading, after the Indian buyer would open irrevocable Letter of Credit.  

The fact is that China is a nonmarket economy and several hidden subsidies and support are given by the Chinese government to help the Chinese industries export the products at a low price and there is no transparency in such matters.

What is particularly surprising is that several buyers and traders in India succumb to the temptation of buying products from China due to the low price and liberal credit terms, even if the quality and specification of the Chinese product would be less than that of the product produced in developed countries.

Curbing the import of products from China is now a national necessity to protect India’s interests. There are many non-essential items imported from China such as furniture, bedding, toys, mobile phones, televisions, etc., which India can do without supply from China. 

In the case of chemicals, bulk drugs, auto parts etc., the capacity utilisation of Indian industries should be improved and production increased by curbing import from China. There are enough capabilities in India with regard to such products.

Even in the case of the renewable energy sector, solar cells are imported from China in large quantities, while solar cell producers in India are languishing.

The government of India should make the price of Chinese goods in India expensive by imposing safeguard duty to protect the Indian industries and national interest. With such protection, Indian industries will have the opportunity to expand capacities, increase production and optimise production cost, which they are unable to do now as they are unable to operate with confidence due to import dumping from China.  

India has to learn from the strategy of US President Trump who has imposed tariffs on Chinese products heavily to curb imports from China. China has tried to retaliate by imposing tariffs on US products. In the process, both the countries have not bothered about the regulations of the World Trade Organisation (WTO).

China is occupying Indian territory and has killed Indian soldiers. In such circumstances, India starting a trade war with China is absolutely appropriate. Even as per the WTO rules, safeguard duty can be imposed on the imported product by any country, if the domestic industry would be adversely impacted.

Certainly, a trade war with India would not destabilise the Chinese economy in a big way, but it would cause concern to China. This would make it clear to China about India’s determination to confront China and would be a trendsetter for several countries in the world who are equally concerned like India about China’s greed, ruthlessness, and territorial expansionist policies.

(Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL)

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