IBM- Article 1

Curbing imports from China: India to be in it for long haul

“India’s frustration with China’s trade policy is growing, as Beijing continues to
ignore New Delhi’s repeated call for greater trade balance. It continues to
effectively restrict market access for several Indian products, especially through
non-tariff measures,” said a trade source.
India is working towards reducing its decades-old, heavy import reliance on China
through a calibrated approach, seeking to steadily move away from “unreliable
supply-chains” that threaten its exports as well as economic growth prospects over
the medium-to-long term, official and trade sources told FE.
In a meeting with senior officials on Friday, commerce and industry minister
Piyush Goyal focussed on possible steps to cut the dependence on untrustworthy
supply-chains gradually and also to reverse a slowdown in exports.
Sources said industry would also be encouraged to explore, more vigorously,
alternative sourcing destinations that can supply inputs at reasonable rates. At the
same time, India will continue to explore options under the “resilient supply-chain
initiative” that has been firmed up with Japan and Australia.
“India’s frustration with China’s trade policy is growing, as Beijing continues to
ignore New Delhi’s repeated call for greater trade balance. It continues to
effectively restrict market access for several Indian products, especially through
non-tariff measures,” said a trade source.
However, such an effort doesn’t include plans for any country-specific tariff hikes,
said the sources. Instead, the dependence would be curtailed by raising local
manufacturing through appropriate policy interventions–including production-
linked incentive (PLI) schemes and removal of inverted import duty structure–and
WTO-compliant tools like anti-dumping duties.
India’s imports from China grew 15% on year to hit a record $68 billion until
November this fiscal despite the fresh surge in Covid cases there. But its exports to
China crashed 37% to almost $10 billion, inflating trade deficit to a record $58
billion in the first eight months of FY23, according to the DGCIS data.

Moreover, the government is increasingly wary of the economies that can

potentially weaponise supply-chains during critical junctures, said the trade
sources. For instance, India’s imports of about a third of the over 50 active pharma
ingredients and key starting materials that it primarily buys from China were
reported to have been obstructed in the immediate aftermath of the pandemic.

China was India’s biggest supplier of intermediate goods, worth about $30 billion a
year, across key sectors, according to an internal assessment of industry body CII,
prepared just before the pandemic struck in 2020. The value of these imports has
only grown from that level. In certain segments, the reliance on Chinese supplies is
too substantial to be discounted. Beijing, for instance, accounted for 66% of New
Delhi’s total purchases of bulk drugs and drug intermediates worth about $3.4
billion last fiscal. Similarly, it makes up for about 70% of India’s imports of mobile
phone components.
Any initiative to stem import dependence on China, while desirable, is a herculean
task that would require a long-term approach at various levels, sources pointed out.
In fact, the reliance is so strong that many Indian companies import from China
even when some of those products could be sourced from alternative destinations
at cheaper rates, said an official source. This is because China is “like a one-stop
store”, with the widest possible product portfolio—something that no other country
can boast of, explained a trade source. “You have a whole eco-system of imports
from China. You get the product you want at competitive prices, so sourcing
becomes easy. Moreover, global shipping lines are happy to go there; not to forget
that China, too, has a strong shipping network,” he said.

Realising the enormity of the task, the government is learnt to be adopting a

calibrated approach. The commerce ministry has already asked various
departments/ministries to zero in on “non-essential” and “sub-standard imports”,
much of which can be traced to China. Once the list of such products is finalised, it
may seek to prop up local manufacturing where excess capacity either exists (but
lying idle due to cheaper imports) or can be expanded easily, to start with.