Can India boycott Chinese goods? (2024)

Contrary to the demand for boycott of Chinese goods, India’s imports from China have seen a sharp increase post the Galwan China’s clashes in 2020. Further the economic slowdown in China has reduced its import from India. The January-August 2022 trade data confirms this trend. An unfriendly neighbour challenges the Indian government in terms of its political and security scenarios that may play out in the times to come. India is dependent on imports of critical products and services from China. In 2018-19, 92% of import of rare earth metal by value and 97% by quantity were sourced from China.

Other bulk commodities that India purchases from China include electrical machinery and equipment’s, laptops, nuclear reactors, boilers, organic chemicals, fertilisers, monolithic integrated circuits-digital, lithium-ion, solar cells, urea, etc. On the other hand, in 2021-22, India’s exports to China were only 5% of its total shipments. The most exported commodities included ores, slag and ash, organic chemicals, mineral fuels/oils, bituminous substances, iron, steel, aluminium etc. Light Naphtha was India’s most valued export.

Critical minerals are mooted as a new base for US-India multilateral collaboration, visible in the “Quad critical and Emerging Technology Working group”, that aims to develop supply resilience among Quad members.

The focus on critical minerals supply chain started after the China-Japan Senkaku-Diaoyu island dispute (2010), followed by a rare-earth embargo imposed by China. US, European Union and Japan are the major importers of rare earths. Due to this the US House of Representatives passed H.R. 761 which declared rare earths an essential for economic growth and national security.

India has also initiated measures to cut dependence on China for key raw materials under its vision to become self-sufficient. India being the “pharmacy of the world”, as the third-largest manufacturer of medicines by volume, India has one of the lowest manufacturing costs globally. About one in three pills consumed in the U.S. and one in four in the U.K. are made in India. Yet, India’s $42 billion pharmaceutical sector is heavily dependent on China for key active pharmaceutical ingredients or API — chemicals that are responsible for the therapeutic effect of drugs. For certain critical drugs India’s dependence on China is almost 90%. This makes it difficult for domestic companies to find alternative sources at competitive prices in the short run.

As per a government scheme launched two years ago, 32 plants across India have begun production of 35 APIs by March this year which is expected to lower dependence on China by up to 35% before the end of the decade, according to an estimate by ratings firm ICRA Limited (Indian affiliate of Moody’s). Moreover, for the pharma sector, the government has appropriated over $2 billion worth of incentives for both private Indian companies and foreign players to start producing 53 APIs that India relies heavily on China for.

Likewise various domestic industries are dependent on China for procuring raw materials and intermediate products required by them. The case study of the automobile industry reveals 24 percent of all the auto components being imported in India are from China. China holds a 24 per cent share in auto tyres and tubes imports. Government of India launched the production linked incentive scheme in mid-2020, at the time when military tensions with China were high. The PLI program aims to incentivize companies across all sectors to boost domestic manufacturing by $520 billion and target year 2025.

Also, approximately 24% of energy generated by coal plants in India are using critical equipment imported from China. This poses a security threat to India. Whereas to limit such imports from China, would imply power companies to bear heavy costs which they will finally recover from the consumers.

Recently India took steps to hurt the Chinese economy starting with a ban on Chinese apps, scrutinising Chinese investments – keeping Chinese companies out of 5G trials, curbing opportunistic takeover of domestic firms – FDI restriction, reducing import dependency for APIs – Promotion of Bulk Drug Parks and PLI Scheme, there is a De facto ban on the import of Chinese power equipments. Imposition of anti-dumping duties on certain aluminium goods and chemicals to protect local manufacturers plus identification of 12 sectors to make India a global supplier and cut import bills.

Border tension between India and China has escalated the demand by Indians to boycott Chinese goods. Such patriotic emotion can be justified but cannot be so easily implemented. Implications of such boycott need to be realised before blindly jumping into it. No country including India can afford to eliminate its import of its critical products. However, it can diversify this dependence by reducing China’s part in it. For this India can partner more with the U.S., Europe, South Korea and Japan. Moreover, self-reliance in major sectors where India is a net-importer is the best way to strengthen the market by using technology and capital to its advantage.

China’s recognition as a global power is due to its export-led growth strategy. China has the largest share of total world export at $2,494,230 million which earned her the status of ‘world’s factory’. Many analysts are expecting China’s exports to fall as global economies are heading into recession and slowdown, burdened by reduced demand, soaring prices and rising interest rates. India has started working towards “Aatma Nirbhar Bharat” and when this goal is achieved to a point where we are strong enough domestically and have alternative sources at competitive prices then we can afford to boycott Chinese products.

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