Many Indians want to shun Chinese goods -- here’s why that doesn’t make sense

Reuters
Later this week, India will celebrate Holi, the festival of colours.

It’s also that time of the year when the boycott Chinese-goods-wallahs, tend to become hyperactive. This stems from the fact that over the years, a lot of Made-in-China pichkaris (water guns) and colours, have made it into the Indian market.

This year, China’s decision to block the declaration of Masood Azhar as a global terrorist at the United Nations Security Council (UNSC), has added fuel to fire. And hence, we are gunning for Chinese goods.

But the question at the end of the day is, how feasible is this? Can India really afford to boycott Chinese goods? And if it does what difference will it really make? Let’s take a look at this pointwise.

1) Take a look at Figure 1. It basically plots India’s exports to China, India’s imports from China, along with the trade deficit.


India has been running a trade deficit with China for a very long time -- India’s imports from China are more than its exports to China. Figure 1 has data starting from 1991-92. In 1991-92 and 1992-93, India ran a trade surplus with China (its exports to China were more than its imports from China) and since then it has been running a trade deficit, which has exploded in the last 15 years. Hence, India’s trade deficit with China is not recent. It has been there for a while.

2) Why has India’s trade deficit with China exploded? The answer lies in the simple fact that India’s imports from China have exploded, whereas India’s exports to China have slowed down. In 2003-04, India’s trade deficit with China was around a billion dollars with exports to China being $3 billion, whereas imports from China at $4 billion.

By 2011-12, the Indian exports to China had risen to $18.3 billion, which is where they peaked at. The imports during the same year were at $57.6 billion. The imports continued to increase after this and in 2017-18, stood at $76.4 billion, with exports falling to $13.3 billion. Hence, the trade deficit has kept increasing.

What this also tell us is that India’s global export competitiveness over the years has come down dramatically. And this has hurt us in our trade with China as well. This is where the problem is.

3) It is important to understand that no one is forcing Indians to import goods from China. The fact that we are doing it is out of free will. The Chinese goods are either more value for money (i.e. better quality for the price demanded) or they are goods which are simply not widely available in India. Hence, it’s a matter of free choice and many Indians have executed that choice and chosen to buy Chinese goods. This free choice needs to be respected. In 2017-18, 16.4% of India’s total imports where from China.

4) What about those wanting a ban on the import of Chinese goods? Without getting into whether it’s possible to do that given the international regulations that prevail, there is another simple point that needs to be made. Typically, people supporting ban on Chinese goods tend to belong to traders’ bodies. It’s easy for traders to organise themselves into bodies. The Confederation of Indian Traders is one such body. The same is not true for customers.

As mentioned earlier, one of the reasons Indians have been buying Chinese goods is because they offer more value for money. If they are forced to buy Indian goods, they will end up paying more for these goods. Of course, they have no way of organising themselves to protest against paying more.

5) Also, there is another fundamental point that people don’t tend to realise. Everyone only has so much money to spend. If people are forced to pay more for Indian products, they will cut down on expenditure somewhere else, in order to keep the overall expenditure constant. Hence, net-net, chances are there overall expenditure will still be the same. If people spend more, then their savings will come down, and at the societal level that will have its own repercussions.

6) India’s imports from China form around 3% of China’s overall exports. Hence, any attempt to stop import of Chinese goods is not going to monetarily hit China much. Over the years, the country has diversified its trade. On the slip side China’s imports from India, make up for around 4.4% of India’s exports. So, as a country India is slightly more dependent on China than vice versa.

7) So, what is the way out? The way out is for Indian companies and companies operating in India to produce goods at a competitive price and of competitive quality, something which encourages Indians to buy Indian products.

Take the case of the current financial year. The total imports from China between April 2018 and January 2019, are at $60.2 billion. They had stood at $63.3 billion between April 2017 and January 2018. One of the major reasons for this is the fall in the import of telecom instruments (primarily mobile phones) from China.

Between April 2017 and January 2018, India had imported telecom instruments worth $13.3 billion from China. Between April 2018 and January 2019, India imported telecom instruments worth $6.7 billion. Hence, these imports have come down dramatically.

The interesting thing is that in January 2019, total telecom instruments worth $494.7 million were imported. This is just 36.2% of the total telecom instruments imported in January 2018.

What does this mean? Given that mobile phone sales haven’t slowed down, it basically means that more and more mobile phones bought in India, are now being assembled in India, though key parts are still imported from China.

This is good news. Many international mobile phones brands are pumping money into making mobile phones in India. This needs to be further encouraged. And this is the strategy that needs to be applied across sectors. Companies need to be encouraged to operate and manufacture stuff out of India, which is something that is clearly not happening. It is also visible in our exports, with exports in 2017-18, almost being the same as exports in 2012-13. There has been some improvement this year.

8) Manufactured goods still remain the number one Indian import from China. This simply stems from the fact that the Chinese products are more value for money. Hence, India needs to be more competitive while taking on China, and that is easier said than done. It is easier to organise protests and burn a few Chinese products and which is precisely what we are doing.

Vivek Kaul is a Business Insider India contributor. Kaul is an economist and the author of the ‘Easy Money’ trilogy.
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