June , 2020
(How) can we afford to boycott Chinese products?
23:51 pm

Rajiv Khosla


The Confederation of Indian Traders (CAIT) representing around seven crore traders and 40000 trade associations, probably motivated by the Prime Minister’s ‘vocal for local’ coinage, has announced (on June 7, 2020) a national campaign to boycott Chinese products.

CAIT started a drive titled, ‘Indian good - our price’ from June 10 onwards to bring down 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 the retail body’s proclamation, the social media was used actively in spreading messages urging Indian residents to boycott the use of Chinese products after the Prime Minister’s clarion call of ‘Atmanirbhar Bharat’ or ‘Self Reliant India’. But the million-dollar question is: can we afford to boycott the use of Chinese products?

Extent of Chinese investment in India

As far as ‘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 liberalisation in the 1990s. However, the poor quality of Indian products in the protectionist regime gave way to liberalisation, privatisation and globalisation. Since Indian companies failed to withstand the test of the competitive era, import of cheap goods from other countries, particularly China picked up.

In statistical terms, the share of China in India’s imports was just 0.11% in 1991 and it increased to 14.6% in 2018. During Modi’s rule, there has been a 2% increase in Chinese imports since 2014. In the year 2018-19, our imports from China were to the extent of `50000 crore 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, it will hardly put any dent on total Chinese exports. But trade war with China at this juncture can decimate our chances of growth. Interestingly, our exports to China were to the extent of `12000 crores only in 2018-19 which was just 5% of our total exports to other partner countries.    

Besides unswerving import of goods, there has also been a strategic investment by 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 various Chinese companies. Four big Chinese companies that hold major share in Indian start-ups are Alibaba, Tencent, Shunwei Capital and Fosun. Indian start-ups 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 start-ups are China Lodging Group and China-Eurasia Economic Cooperation Fund. As per a report of the Research Institute Gateway House (released in February 2020), Chinese technology investors have invested approximately $4 billion in Indian start-ups in the 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), the rhetoric for boycotting the use of Chinese products seems laudable. But can it be done?

What can be done?

The 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%. Hence, there exists a good scope for increasing the import duty by almost four times.

So far, the track record of the Modi government has shown that it is highly obsessed with keeping the fiscal deficit low and does that by repressing public expenditure. This approach has prevented the government from taking pro-public decisions even during emergencies like the recent lockdown. The government seems to be plagued by the mindset that fiscal deficit within limits brings good ratings 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 along with rupee depreciation. However, capital outflow can be restricted through alternative mediums like restricting the outflow of capital through banks, raising the rate of interest in the bond market to keep it attractive for foreign capitalists, restricting foreign purchases by Indians and by suspending capital withdrawals by foreigners. Only a radical approach by the Indian government can actually help it to achieve the dream of self-reliance.


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