Till India’s conditions for manufacturing are not world-class, there is no alternative to large Chinese imports
Ever since the Pulwama attack that killed CRPF jawans and the continued Chinese cover for Pakistan – China, once again, thwarted India’s efforts to have Jaish-e-Mohammad found Masood Azhar declared a ‘global terrorist’ – there have been a series of calls to boycott Chinese goods, to keep Chinese firms out of the Indian market; US president Donald Trump playing hardball with the Chinese on trade and the US government action against Huawei are cited admiringly in this context. A Delhi-based traders association has called for a Holika-dahan burning of Chinese goods on Tuesday and various WhatsApp forwards helpfully give details of Indian mobile phones that can be bought here instead of Chinese brands; so they cost a bit more, the underlying argument is, but a true patriot won’t mind since this will deal a big blow to China since mobile phone imports are around a fifth of imports from that country.
All of this is pie-in-the-sky. For all the talk by various government ministers, starting with prime minister Narendra Modi, of how the number of mobile phone making units in India has skyrocketed over the past five years, the fact of the matter is that all of this has only meant more business for China as 85-90% of the components used in even Indian brands are made in China, apart from the fact that the market share of most Indian brands is miniscule. So, as more mobile phone units came into being and started assembling phones here, Counterpoint data shows imports of mobile phones crashed, from $7.4bn in 2014 to under $2bn in 2018 but, at the same time, imports of components rose from $1.4bn to $11.4bn. Indeed, this number could be an understatement because India’s commerce ministry data puts FY18 imports of ‘telecom instruments’ from China alone at $15.6bn, up from $5.2bn in FY10.
While calls to the faithful to boycott Chinese goods to treat China a lesson are quite stirring, at $2.5 trillion, China is the world’s largest exporter – its exports, by the way, are almost as large as India’s GDP of $2.7 trillion – and you don’t achieve that unless you are very competitive. In a more or less free-trade situation, if you aren’t competitive globally, you can’t be competitive locally. So, if India has to be able to stop Chinese imports, it needs to be as competitive in global markets; and given its exports are less than a seventh those of China, it is clear India cannot keep Chinese imports out. At 77th, India’s DoingBusiness rank is far behind China’s 46th and at 163rd, India’s rank for enforcing contracts is way behind China’s 6th rank. But more than this is the fact that India’s real interest rates are upwards of 10-11% and make investments that much more unattractive, it tax rates are amongst the highest in the world. Coupled with rigid labour laws and high-cost infrastructure like land and electricity, it is hardly surprising that both foreign and local investment levels in India are falling as a share of GDP; add to this the government’s inability to fix its telecom policy for over a decade or the U-turn in its ecommerce policy or the frequent reversals in its policy towards oil and gas producers. Talk of boycotting Chinese imports is easy, much like the ‘taking out’ of Masood Azhar with a drone-shot, but it will take a long time, and requires the government to, simultaneously, carry out wide-ranging reforms in areas where most governments have hesitated since even 1991.