China forms an integral part of the global supply chain, and India too is heavily dependent on Chinese imports, ranging from a variety of raw materials to critical components. China accounted for over 5% of India’s total exports in financial year 2019-20 and more than 14% of imports.
According to data from 2019, a staggering 70% of electronic components, 45% of consumer durables, 70% of Active Pharmaceutical Ingredients (APIs), and 40% of leather goods come from China.
Products such as fertilizers are 76% cheaper, electronic circuits 23%, and data processing units around 10% cheaper if made in China.
Dumping is a practice of selling goods in a foreign country at a price below their domestic selling price, after allowing for differences accruing from transportation expenses, tariffs, and other cost justifications.
The deluge of imports from China has adversely affected India’s manufacturing sector, forced many industrial units to operate at below capacity levels and in some cases to shut down.
The Chinese goods are competitively priced not just due to better manufacturing ecosystem that it possess but it is also due to support of the Chinese government, manipulating its currency to maintain export competitiveness and unfair trade practices like export subsidies in contravention to WTO regulations.
It is clear that there is increasing trade deficit between the countries which has only accelerated post Covid.
- China’s dominance in low cost manufacturing.
- China is well integrated in the global supply chain.
- India’s poor manufacturing capacity underpinned by lack of reforms in Land, labor and capital utilisation.
- The recent COVID issue has permanently damaged many MSME’s in India, making it difficult for the manufacturing companies to source intermediate products.
- To protect domestic players from cheap imports, India has imposed anti-dumping duty on as many as 99 Chinese products including Chemicals, petrochemicals, fibre, yarn, pharmaceutical, rubber etc.
- Ambitious programme of Make in India to encourage manufacturing industries and achieve a target of an increase in manufacturing sector growth to 12-14% per annum over the medium term.
- Declined joining RCEP as it would lead to a flood of cheap Chinese goods crowding out Indian-produced products.
- India has taken up issue of Software and Pharmaceutical exports not being allowed in China.
- Indian Government banning many of the Chinese Apps for security reasons.
- India in spite of being net buyer of Chinese products isn’t at great advantage to encash it against China in other policy matters. That is because though China is India’s biggest trade partner, India constitutes only 4% Chinese export market. Any measure to impose import duty would have limited impact on its trade.
- India has enormous security implication for being highly dependent of Chinese electronics goods. The recent decision by India to leave out Huawei in 5g trials is an affirmation of the above fact.
- Bleeding of Indian small scale industries which produced products like Agarbattis, toys etc. due to dumping by China.