UPSC important essay on Blanket ban on chinese products

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General Studies Paper II

Topic: India and its neighborhood- relations

 Mains Question:- 

Boycotting Chinese goods will hurt Indian economy more than the Chinese. India needs to carefully tread on this path and set its house in order before undertaking such initiatives. Discuss.

Blanket Ban on Chinese Products : Is Feasible for India

 Why in News?

Following the recent clashes with Chinese troops in Ladakh in which 20 Indian soldiers were killed, there has been a growing clamour in the country to boycott goods from the neighbouring country. However, the development has caused an alarm among various industry bodies that are concerned about the adverse impact in the event of a blanket ban on exports in several sectors.

 

Background

Ø The Indian government has tried to respond to the border dispute with China by training its guns on trade. The idea resonating in Indian streets is that Indian should boycott Chinese goods and thus “teach China a lesson”.

Ø Calls to boycott Chinese products and halt trade with China, were witnessed around the country, with people burning Chinese appliances and a Union minister even demanding that Chinese restaurants be banned to teach our eastern neighbour a lesson.

Ø That China regularly engages in unfair trade practices, like dumping and usage of subsidies or export restrictions on industrial inputs to out price competitors, is a fact well known. However, it is also true that waging a trade war against China by boycotting its goods to avenge a border dispute is an idea that would likely hurt Indian interests far more than Chinese.

Ø Confederation of All India Traders (CAIT) has released a list of 500 categories of items imported from China that the confederation said could be swapped for Indian-made goods, such as apparel, consumer electronics and toys.

 

Ineffective Boycott

Ø Boycotting Chinese goods doesn’t make sense for many reasons — one of the biggest being the skewed nature of trade between the two countries. China is India's largest trade partner, while India doesn't even figure in the top 10 of China's trade partners by total volume.

Ø Two years ago, the US edged past China to become India’s biggest trading partner at 11.3%. However, China still accounts for 10.6% of our trade. Together with Hong Kong, it is actually our largest trading partner by a wide margin. India accounts for only 2.1% of Chinese trade, and is in 12th place based on figures in 2018. US tops the list at 13.7%. A trade war will, therefore, hurt India much more than China.

 

India’s Dependence on China

Ø China has now become a significant, though still modest, foreign investor. As of December 2019, China's cumulative investment in India exceeded $8 billion. That is too puny to worry about. In the last decade, China has become technologically worldclass and financially powerful, but is nowhere near as strong as US companies, and nowhere near as dominant as US companies were in the 1960s and 1970s.

Ø Eighteen of India’s 23 unicorns (startups with over $1 billion value) have some investment from Chinese companies. More is badly needed today since the Covidinduced recession threatens to kill many unicorns. These include OYO, Paytm, BYJU’s, MakeMyTrip and Swiggy. Apparently alarm bells started ringing when Chinese investment in HDFC went up from 0.8% to 1%.

Ø For electronics, the percentage dependence on Chinese imports is as high as 43%, while for garments and textiles it is 27%.

Ø With their pricing power, Chinese firms such as ZTE and Huawei have supplied 40% of over $15 billion worth of telecom gear bought by Indian telcos. Ditto in the power sector. It is estimated that China has supplied equipment to 78% of solar projects in India.

Ø Close to 70% of all Active Pharmaceutical Ingredients (APIs) in the pharma industry come from China. Any supply disruption would hurt India’s $39 billion pharma industry, the world’s third largest drug producer (by volume).

Ø About 27% of auto component exports come from China. Recent disruptions caused by COVID-19 affected component supplies to Indian auto factories.

Ø China today controls mining and global supply of rare earth — a set of 17 elements used in EVs.

 

Mis-timed Boycott

Ø The first thing to understand is that turning a border dispute into a trade war is unlikely to solve the border dispute. Worse, given India and China’s position in both global trade as well as relative to each other, this trade war will hurt India far more than China. Further, such a shock — banning all trade with China — will be most poorly timed since the Indian economy is already at its weakest point ever — facing a sharp GDP contraction.

Ø The surge of protectionism and anti-globalisation sentiment since the start of the Global Financial Crisis of 2008 is well known but it is also well established that trade leaves people better off.

Ø All inefficient domestic industries would want to be protected by higher tariffs in the name of economic nationalism. But, this protection will come at the cost of domestic consumers.

Ø Indeed, in the first four decades of India’s existence, it has tried — and miserably failed — making mantras like “self-reliance”, “importsubstitution” and “protecting infant domestic industries” work.

Ø India must try to aggressively acquire a higher share of global trade by raising its competitiveness. India now has an insignificant share in world trade. If it is not careful, much smaller countries will further chip away.

Ø For instance, while in November 2019, India refused to join the Regional Comprehensive Economic Partnership (RCEP) — a Free Trade Agreement (FTA) in a region that is least affected by Covid and most likely to see trade volumes in the future — Vietnam signed an FTA with the European Union. Indian exporters were already losing ground in the European Union (EU) to Vietnam will now be adversely affected since most Vietnamese goods will enjoy zero import duties in the EU, thus making them more affordable for European consumers.

 

Opportunity based Boycott

Ø The free trade argument is not a matter of religion. Britain became a free trader only in the mid-19th century, when it had established a clear lead in the Industrial Revolution. The United States, once the champion of free traders, is shifting position now (“America First!”). So import substitution (or self-reliance) is a valid tactic — if you know how to use it.

Ø By all means be tactical. Don’t allow China access to strategic markets, like telecom products, because of the possibility of spyware mischief. Also exclude China from product segments where the quality record is said to have been poor, such as thermal power plant equipment. And if China is looking for ways to keep out Indian pharmaceuticals or software services, hit back in the same coin. Even cancel railway contracts if project completion is hopelessly delayed, but bear in mind the time taken to get alternative bidders. In short, aim carefully and don’t shoot yourself in the foot.

Ø India should identify sectors that are of strategic importance like pharma, where irrespective of the cost, it must chart a long-term policy of backward integration and self-sufficiency to secure its national interests. The emerging global realignment against China will help India. In its pursuit of dominance, China has antagonised virtually every powerful country. The COVID-19 pandemic — which originated in China — and its ripple effects have only worsened it. When India restricted Huawei, it was hardly alone. The UK has proposed a D10 — a club of 10 democracies — to restrict Huawei on 5G. China’s strike in Ladakh has hurt India’s self-esteem. It has also perhaps hardened Modi’s resolve to make Bharat selfreliant, or atmanirbhar.

 

Way Forward

Ø Instead of imposing a blanket ban, what is needed is a greater strategic push to correct the bilateral trade skew as it stands today. India also needs to prop up its crumbling infrastructure, and fix its complicated regulatory regime, to become globally competitive.

Ø Instead of pandering to jingoism, India would do well to set its own house in order, if it wants to be in a position to say a firm ‘no’ to China.