A couple of weeks ago Global Times, the official mouthpiece of the Chinese regime has published an article articulating that “it is advisable for India to stay away from the US-China confrontation”[3]. Presently, the US-China pressures are rising over a wide range of issues like the COVID-19, Hong Kong, and the incorporation of Taiwan in WHA meet. Numerous specialists have communicated their perspectives that another cold war has emerged between the two biggest economies of the world. This is further coupled with the recent Sino India border scuffle in Galvan Valley and both the countries flexing their muscles militarily against each other expanding the size of their border troopers.
With the worsening military ties between India and China, there is a national outcry to boycott all trade relation with China. The question here is how feasible it is for the two Asian neighbors to force extreme exchange obstructions on each other’s exports? For a better comprehension of this issue, let us take a look at some measurable trade figures between the two countries.
During 2019-20, the reciprocal exchange among India and China remained around USD 85.2 billion with Indian exports worth just USD 17 billion and imports around USD 68.2 billion. This accounts for an enormous exchange deficiency worth USD 51.2 billion,[4] which is highest among all of its trading partners. This demonstrates in a roundabout way that we are refinancing an economy that doesn’t keep an uplifting disposition towards our nation. During the same period, the portion of China in India’s general exports was around 5.2 percent though the portion of India in China’s general exports was simply around 3 percent which shows that China is moderately a more significant export market for us than we are for China[5]. On the other hand, China’s share in the general imports of India was around 14.2 percent while the portion of India in the general imports of China was around 0.9 percent.
Out of India’s all-out imports of silk, 69 percent originated from China. Similarly, out of India’s complete imports of electronic equipment, 41 percent originated from China. Further, presently the medicines produced by the Indian pharmaceutical industry require active pharmaceutical ingredients (API) which we predominantly import from China. For most of the sectors where imports are specifically important for India, say Chemical, rubber and plastic products, or machinery and electronic equipments, or metallic products industries, China’s clutch is unmatchable at present. Additionally, Chinese cell phones have immense strength in the Indian cell phone market. The presence of Chinese brands in the Indian cell phone market arrived at a record 66% during Q1 2019[6].
In the most pessimistic scenario, on the off chance that China suspends its exchange with India, at that point, the Indian economy can confront a significant blow in the short run because of the reliance of India on Chinese imports. It’s likely that our enterprises may get deadened for some time. Although India has a good understanding with the Southeast Asian nations like Vietnam and Indonesia, which may come handy in filling the gap however the volume deficit would be unimaginable.
Thus any extreme trade restrictions would badly affect both the Indian exchequer and the domestic customers. However, it gives a clear sight for the requisite policy intervention and infrastructural investment required to be prepared for the worst case scenario. India needs industry targeted policies coupled with suitable atmosphere for realizing the true benefits of the theory of Comparative Advantage. The average MFN duty applied by China on its imports is around 9.8% which is generally half as forced by India on its imports at around 17.1%[8].
India needs to explore other Non Traffic Measures to decrease the low quality Chinese imports while keeping a check on the Rules of Origin norms to maintain a strategic distance from any redirection of imports, simultaneously exploring other trading partners. Only a well calculated economic move and not any myopic impulsive act could possibly give the desired result in taming the mighty dragon
By – Aakash Dev[1] & Vipin Kumar[2]
[1] Ph.D Research Scholar, Dept. of Economics, Shiv Nadar University, Greater Noida
[2] Research Associate: IKDHVAJ Advisers LLP
[3]https://www.globaltimes.cn/content/1190096.shtml
[4] ITC Trade Map
[5] ibid
[6]https://www.counterpointresearch.com/india-smartphone-share/#:~:text=The%20market%20share%20of%20Chinese,shipments%20declined%20by%202%25%20YoY.
[7]ibid
[8] ibid
