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Boycotting Chinese Goods – What Does it Mean for India?

In his address to the Nation in May 2020, Prime Minister Narendra Modi announced his vision for an ‘Atmanirbhar Bharat’ and this fired up a movement to boycott made-in-China products. The face-off between the Indian and Chinese troops on the 15th of June at Galwan has given the movement a new direction; banning import from China to India.

However, a ban on Chinese Products and an embargo on bilateral trade between India and China might not be the best strategy for India, and we may even stand to lose more than China.

India-China Economic Relations

The Indian Trade Balance with China is in the negative, which means we import more from China than they do from us. In 2018-19, Indian exports to China were worth Rs. 1.17 lakh crore while Indian imports were worth Rs. 4.92 Lakh crores. This indicates that India is more dependent on China for trade than vice-versa.

Chinese imports make up a whopping 72% of the smartphone market, and almost 50% of televisions are made in China. To put our dependence on Chinese imports into perspective, Chinese products completely dominate the solar market with a 90% market share.

Why are Made in China products popular in India?

As a free economy, Indians are not obligated to buy Chinese products. Since there are a lot of so-called ‘cheap China products’ which are notorious for their lack of durability and questionable quality. This begs the question;why are Chinese products still in such high demand?

The answer seems to lie in how China has set up economies of scale. Chinese products are manufacturedin bulk at substantially lower prices, and with features and options in budget products likely only find in locally-made premium segment products.

Roadblocks for the “Boycott Chinese Products” movement

The biggest challenge may be that we just don’t have any locally-available alternatives yet. The Confederation of All India Traders (CAIT) has been one of the most vocal promoters of the movement. However, their National General Secretary Praveen Khandelwal expects it will take till the end of 2021 for India to compress imports by just 20%.

The second major hurdle is that a lot of businesses and tradesmen depend on India china business. Street vendors, storekeepers, and even larger businesses have already been hit hard by the Covid-19 situation and are unlikely to join the movement anytime soon.

What will be the impact of boycotting Chinese goods?

  • Our dependence on Chinese imports is so widespread that everything from capital goods to chemicals and machinery could face enormous difficulties
  • Indian imports make up just 2% of China’s total exports, so reducing trade won’t affect China. However, it can have a substantial negative impact on India
  • Many Indian industries depend heavily on imports from China, from aviation to essential medicine, and turmoil could be catastrophic for the country.
  • India recently saw a massive demand for hydroxychloroquine, but the production depends on Active Pharmaceutical Ingredients (APIs), which primarily come from China
  • Products would become more expensive so that Indian consumers would have limited options with much higher price-tags

Is self-reliance the solution?

For India to be able to slow down imports from China gradually, the Government will need to support manufacturing industries, to enable them to capitalise on economies of scale so that they can offer lower priceswith better quality. Thus, we need a high level of disruptive elements in a variety of markets, if India is to increase its self-reliance.

It is doubtful that China will feel the pinch of losing out on the India China business. Still, many Indian markets are highly dependent on imports from China and will be adversely affected.

Shiv Nanda

Shiv Nanda

Shiv Nanda is a financial analyst at MoneyTap who loves to write on various financial topics online. He also advises people on financial planning, investment choices and budgeting skills, and helps them make their financial lives better.

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