(How) Can we afford to boycott Chinese Products?

Confederation of Indian Traders (CAIT) representing 7 crore traders and 40000 trade associations, riding on Prime Ministers ‘vocal for local’ avowal, announced (on 7th June) a national campaign to boycott Chinese products. CAIT started a drive “Indian good – our price” from June 10 onwards to bring down the imports from China.

It has also prepared a comprehensive list of about 3000 products which are imported from China and for which Indian substitutes are easily available. But even before Traders’ Confederation proclamation, Social media was active in spreading messages urging Indian residents to boycott the use of Chinese products after Prime Minister’s clarion call of ‘Atmanirbhar Bharat’ or ‘Self Reliant India’.

The logic behind all this is not difficult to be understood. When Indians will buy the products made fully in India, Indian businesses will flourish and the economy will do well. But the million-dollar question is: can we afford to boycott the use of Chinese products?

Extent of Chinese Investment in India

To the extent ‘atmanirbharta’ is concerned, it is the reincarnation of import substitution that remained a buzz word in the Indian economy, particularly for the economists, right from independence till liberalization in 1990s.

However, the poor quality of Indian products in the protectionist regime gave way to liberalization, privatization and globalization. Since Indian companies failed to withstand the test of competitive era, import of cheap goods from other countries, particularly China, picked up. In statistical terms, share of China in India’s imports that was just 0.11% in 1991 increased to 14.6% in 2018.

During Modi’s rule itself, there has been a two percent increase in Chinese imports since 2014. In the year 2018-19, our imports from China were to the extent of Rs. 50000 crores which constitutes just 2% of China’s total exports. India’s major industries that draw massive imports from China are toys (90%), electrical and electronic equipment (60%), smart phones (60%), bicycle and its parts (50%) and automobile components (30%).

Even if all imports to India gets prohibited, still it will hardly put any dent on Chinese total exports as India captures only a minuscule portion of total exports of China. But trade war with China at this juncture can decimate our chances of growth. Interestingly, our exports to China were to the extent of Rs. 12000 crores only in 2018-19 which was just 5% of our total exports to the partner countries.

Besides unswerving import of goods, there has also been a strategic investment by the Chinese companies in India. Swayed by Prime Minister Modi’s ‘Digital India’ movement, Chinese companies have recklessly invested in Indian Start ups.

Fintech, entertainment, food delivery, commerce and taxi services apps are heavily financed by the Chinese companies. Four big Chinese companies that hold major share in Indian start ups are Alibaba, Tencent, Shunwei Capital and Fosun. Indian startups like Paytm, Snapdeal, Big Basket, Rapido and Zomato etc. are financed by Alibaba.

Similarly, Tencent has a major share in Ola, Swiggy, Mygate, Flipkart, BYJUs etc. Shunwei Capital holds stakes in Hungama, OYO, and Sharechat. MakeMyTrip, Ixigo, Kissht and Pharma are backed by Fosun. Apart from these four big Chinese companies, other Chinese companies that have invested heavily in Indian startups are China Lodging Group and China-Eurasia Economic Cooperation Fund.

As per the report of a Research Institute Gateway House (released in February 2020), Chinese technology investors have invested approximately $4 billion in Indian startups in last five years or so. Not only this, 18 of India’s 30 unicorns (start up companies having valuation over $1 billion) are now Chinese-funded. Amid excessive reliance of India on Chinese goods and investment (indirect), rhetoric for boycotting the use of Chinese products seems laudable.

What can be done?

Indian government needs to actively play a role in case it is actually serious about self reliance. Our average import duty stands at 13.8% whereas we have committed to the World Trade Organization that we will not impose an average import duty of more than 48.5 percent. Hence, there exists a good scope for increasing the import duty by almost four times more.

So far the track record of Modi government has shown that it is highly obsessed with keeping low the fiscal deficit and tries to contain it by repressing the public expenditure. This approach has prevented the government from taking pro-public decisions even during emergencies like lockdown due to covid-19.

Simple narrative that has plagued the government’s mindset is that fiscal deficit within limits bring good rating for the economy (by the international rating agencies like Moody’s, Barclays, Fitch etc.) which renders India an attractive hub for foreign capital. If even now the same mindset prevails, and the government does not spend on strengthening the ecosystem for elevating the manufacturing sector in particular, then self-reliance may remain a distant dream.

Of course, tough decisions in the direction of self reliance may see a flight of foreign capital alongwith rupee depreciation, yet the capital outflow can be restricted through alternative mediums like restricting the outflow of capital through banks, raising the rate of interest in bond market to keep it attractive for foreign capitalists, restricting the foreign purchases by Indians and suspended capital withdrawals by the foreigners. Only a radical approach by the Indian government can actually help it to achieve the dream of self-reliance, urge to boycott Chinese products will always be rhetoric.

Read more: Response to COVID: Self-Dependence or Interdependence