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    Boycotting Chinese goods is easier said than done for India. Here’s why

    Synopsis

    The growing presence of China in global trade has given her the status of the ‘world’s factory’.

    china
    In the pharmaceutical sector, China accounts for a 68 per cent market share in imports of total bulk drugs.
    By Deepthi Mary Mathew

    Border tension between India and China has added a new dimension, with rising chorus to boycott Chinese goods. If the government acts in accordance with the public demand, it could strain trade ties between the two countries.

    Nonetheless, before taking such a step, it would important to understand the implications of such a strategy. China’s emergence as the global power was backed mainly by its export-led growth strategy.

    The country has increased its share in global export of goods and services from 7 per cent in 2008 to 11 per cent in 2018. The growing presence of China in global trade has given her the status of the ‘world’s factory’.

    In FY20, India imported $65 billion worth of commodities from China, which was around 14 per cent of India’s total imports. Manufactured goods constituted the highest share of India’s imports from China at 96 per cent. Within manufactured goods, electronic goods constituted the highest share (33 per cent), followed by engineering goods (32 per cent), and chemicals and related products (20 per cent).

    Any move to disrupt the flow of goods may prove costly for India. The dominance of Chinese products in the Indian market is due to the price advantage they offer. For instance, there is a higher demand for Chinese smartphones in the Indian market due to better cost-to-performance ratio. In Calendar 2019, India had more than 500 million smartphone users, up 18 per cent from the previous year. The Chinese brands played an important role in bringing more users to the smartphone ecosystem.

    Even if the government decides to raise import duties on Chinese goods, ultimately it would be the Indian consumers who have to pay a high price.

    Similarly, various domestic industries are dependent on China for procuring raw materials and intermediate products required for their production. In the case of the automobile industry, for instance, 24 per cent of all the auto components being imported come from China. China holds a 24 per cent share in auto tyres and tubes imports.

    In the pharmaceutical sector, China accounts for a 68 per cent market share in imports of total bulk drugs and drug intermediaries. In the short run, it would be difficult for domestic companies to find alternative sources for procuring raw materials at competitive rates.

    Thus, straining the trade ties with China is easier said than done. But that doesn’t necessarily mean that India wouldn’t be able to catch up with China or take China’s position in global trade.

    Even in these difficult times through the Covid-19 crisis, IMF rates India as the fastest growing economy, forecasting a growth rate of 1.9 per cent, while other major economies are projected to see degrowth.

    But that too cannot be reason enough for India to be economically tough on China. The prescription should be to fix structural issues in the economy, and bring in more reforms than go in for short-term solutions.

    More importantly, if not most, reforms must be prompt to have meaningful outcomes from such interventions. It took the already ailing Indian economy a global health crisis to initiate some long-needed reforms. Such delays can prove costly.

    It was anticipated that the US-China trade tensions would turn favourable for India’s export sector. However, things did not turn out well for India, whereas countries like Vietnam and Bangladesh were able to grab the opportunity. It stresses the fact that India needs the right policy interventions at the right time.

    (Deepthi Mary Mathew is an Economist with Geojit Financial Services. Views are her own)



    (Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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