India needs to take a calibrated call in reducing import dependence from China and not through sudden stops.
At present, a huge clamour has grown about banning imports from China, after the border standoff.
According to the SBI Ecowrap report, India must go for imposing restrictions on certain products in which it has a revealed comparative advantage over China, and which will provide support to the country’s MSMEs.
“However, demanding to curtail all imports at one go from a country which is so entrenched in our economic system is unreasonable and might disrupt the local supply chain when looked at, either from the producers’ side or consumers’ side,” the report said.
Accordingly, the report cited that India is dependent on China for a lot of products at the lower end of manufacturing.
In FY97, at 2 digit classification basis, there were 22 categories in which India did not import anything from China, whose value of imports in FY20 is around $500 million.
“In principle, China has spread out in all other categories, including low value manufacturing to high value capital and electrical goods,” the report said.
“Although value wise the import is miniscule in the categories in which China has started importing over the years, these are some labour intensive and small scale industries like, prepared products of vegetables, fruits, cereals, flour, meat and fish, products of milling industry, wood and articles of wood, headgear and parts.”
As per the report, utmost caution has to be exercised to see that the rights of consumers in the form of variety of choice are protected, while making sure that China does not eat away the local industries which can easily build capabilities in these areas, so that India does not have to import these products.
Besides, the report pointed out that China’s biggest capabilities also lie in capital goods and high value consumer goods export and in case of India too China’s machinery and electronics imports dwarf the rest of the industries.
“When we sum the 84 and 85 HS Classifications’, they accounted for 49.7 per cent of the total imports from China in FY20, the report said.
“This share was just 14 per cent in FY97. The sudden spike came in FY 03, when the share went from 24.8 per cent to in the previous fiscal to 35.3 per cent. The growth rate of these imports was an astonishing 94.6 per cent for FY03. The time period from FY03 to FY08, saw more than 60 per cent increase every year in these imports, helping China slowly and steadily build a solid base in machinery and electronics imports in India.”
Nevertheless, the report mentions that beginning FY08 the growth rate has moderated.
“However, some years have seen sudden jumps in growth rate. But these are not as high as the period mentioned before. In fact FY19 saw the highest decline of 19.4 per cent in imports of these commodities,” the re port said.
“FY20 data also shows negative growth rate. However, for India to make a significant dent, it will have to substantially bring down these imports over the years. Given the productive nature of capital and electronic goods, the decline in these imports has to be gradual as India builds domestic capacity to fulfill the needs of domestic population, as well as meet export demand.”