There is a consensus that India needs to take stern action against China, at least on the economic front. The first action can be to sever diplomatic ties. However, this is more theoretical, and not feasible as this is not yet a war-like situation.
The second option is to have an Iran-like situation, where we, like the US, get the world to impose sanctions. But the India-China skirmish today is localised, and, hence, cannot be taken to that level. Besides, India does not have such sway over the rest of the world.
The third is to directly ban goods from China or impose a prohibitive tariff on imports. We will have to contend with the WTO, but then the organisation does not have the clout to act. China can do the same for our exports, but given that we imported around $65 bn and exported around $16-17 bn on an annual basis in FY20, this may not matter in net terms. Such a decision would have to be taken at the political level and, at present, does not look to be under active consideration. We did have anti-dumping duties some time back on steel imports from China; these, however, were based on an economic and not political rationale.
Fourth is all Indian importers boycotting Chinese goods. Of the $ 65bn or so that we import, around $21bn are electronics, $20bn engineering goods and $12bn chemicals. The reason for importing from China is price and quality. These can be sourced from elsewhere, but the cost factor could militate against such a decision.
The fifth is a modification of the fourth, where every citizen in the country desists from buying any good which has an element of Chinese inputs. This is probably a theoretical response as a product can be made using different supply chains and networks. Besides, for a consumer, cost and quality considerations trump everything else.
The nationalistic tone set by Make in India and the Atmanirbhar campaign is quite appropriate for such action. The question is whether we are willing to do this. There have been relentless moves against the use of plastics, where some sections have moved away. There are campaigns against using environment-unfriendly products, which have not quite picked up. The war against colas has not been heard. In such a situation, class action from the masses is unlikely. It has to be done at the level of business, where one is prepared to import from other countries and probably pay a higher cost. There have been some action on this from dispatch agents who have refused to pick up Chinese goods from the ports. But such responses have to become more macro to be effective. It leads to a classical strategy in the realm of ‘game theory’ where no one knows what the other will do and, hence, boycotting Chinese goods could end up with others going ahead and increasing market share in sales of, say, mobile phones. Therefore, it is hard to have strategies here.
In this age of globalisation, Chinese goods can be routed through any other jurisdiction like Hong Kong, Taiwan, Korea, and so on, which will be hard to track. Chinese manufacturers are everywhere, and the import label could say Europe, with a Chinese company being the manufacturer. Boycotting Chinese goods may not be feasible.
In the medium- to long-term, taking such action against any country may not be prudent as skirmishes on the border do not last forever. Withdrawing economic relations may not be the best practice as it sets precedents. Reviving relations after breaking them is even more difficult. That’s why even globally such actions do not happen too often, and the case of Iran is quite singular. Therefore, letting emotions control policy action is not usually the response of the government and diplomatic channels come into play. It can be assumed that the call for a ban on Chinese goods is more a public outcry than a measure that the government could be considering, as we are nowhere close to the tipping point.
Assuming this extreme, how significant will it be for China? In 2019, out of $2.5 trillion (worldstopexports.com) global trade, India was seventh with around $75 bn. The US topped ($419 bn) followed by Hong Kong ($280bn), Japan ($143 bn) and South Korea ($111bn). India’s share is just 3%.
However, for India substituting goods worth $65 bn with equivalents could mean ending up with a higher import bill, which translates to higher prices. While at the macro level, the impact may not be very sharp, it would impact product segments such as laptops, mobile phones, drugs and pharma, TVs, plastics, dairy machinery etc.
Interestingly, out of the $680 bn of FDI cumulative inflows, China has a share of just 0.5%, and, hence, is not a major player. However, routing through tax havens like Mauritius and Singapore cannot be ruled out which have a share of 50% in total.
To conclude, while emotional rhetoric has gained in decibel level, practically speaking, as long as diplomatic relations are open between India and China, taking stringent action is not feasible. Those in favour of a ban argue that we are already less dependent on China for imports. While it may be tempting to conclude that there is a silent withdrawal taking place, overall imports have fallen. The jury is still out on this.
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