| Introduction: Mention the current state of bilateral trade and implication of the same. Body: Write about the factors responsible for the rise in imports from China. Write the steps taken by the government to address the rising imports. Conclusion: Briefly about the importance of reducing the imports from China |
India’s bilateral trade with China crossed $125 Bn in 2021 with imports accounting for about $ 100 Bn. Some of India’s key imports from China include smartphones, components for smartphones and automobiles, telecom equipment, plastic and metallic goods, active pharmaceutical ingredients (APIs), and other chemicals.
The high negative balance of trade with China and the Indian economy’s dependency on China makes the already complicated India-China relation even more difficult to navigate. Especially in the view of tensions on the border.
Factors responsible for increasing India’s import form China.
- Indian manufacturing sector is growing, which requires intermediate goods. This requirement was fulfilled by Chinese imports because Indian market could not fulfill this requirement. For example, API (Active Pharmaceutical Ingredients) in pharmaceutical sector.
- Growth of purchasing power in Indian economy along with the demand for cheaper goods.
- India in the past did not diversify its supply chains which remained largely dependent on China. For example, the Indian electronic goods space is still largely focused on the assembly of products and did not have much discretion in sourcing of components.
- The growth of Chinese manufacturing sector, in the last few decades, whereas the Indian manufacturing sector remained sluggish and comparatively inefficient.
- Given the geographical proximity of China and low prices offered by Chinese firms, it is cheaper and economically efficient to import from China rather than domestically.
- China recovered early from the COVID wave, while Indian economy was still struggling, it gave a push to imports from China.
To address the high negative trade balance with China, the government took many steps.
- Strengthening domestic capabilities.
- Identified 12 sectors – to make India a global supplier and cut import bills.
- Production linked Incentive scheme for promotion of manufacturing and investment in India.
- Rationalization of taxation regime to attract investment.
- Targeted import substitution schemes like package of 4 schemes for API.
- Focus on ease of doing business in India to make India attractive for global players.
- Schemes like Make In India to promote manufacturing.
- Protecting Indian industries
- Modified foreign direct investment (FDI) rules. It was aimed to prevent any FDI in Indian firms – aimed at opportunistic takeovers of domestic firms by Chinese companies during the pandemic.
- Power Ministry imposed a de facto ban on the import of power equipment from China citing cybersecurity concerns
- Keeping Chinese firms out of 5G trials.
- India has also tightened a watch on dumping of goods from China in India.
- Diversifying Indian supply chains, by cooperating with like-minded countries. For example, Supply Chain Resilience Initiative (SCRI) and bilateral collaboration with countries like the USA for semiconductors.
India’s high dependence on China along with rising tensions on borders, create the need for India to reduce its dependence on China and create domestic capability. India shall focus more on it creating domestic economic strength because it not only reduces reliance on China but also will be helpful for overall growth of Indian economy.
