‘Atmanirbharta’ from China — easier said than done

Harish HV | Updated on June 08, 2020

India is much too dependent on China to break away from it easily. We should, instead, focus on boosting manufacturing in areas where we have a chance of taking the lead

In these days of atmanirbharata, there is continuous chatter exorting Indians to stop buying Chinese goods and huge traffic on the subject on Whatsapp and news channels. There were apps which help remove Chinese apps — which have since been taken out by Google Play — proudly forwarded by people claiming they have done it. These messages are flowing through mobile phones (or on on TV sets via set-top boxes — all of these gadgets are made in China.

Is it realistic for India to stop buying from China, and will these gestures really “teach it a lesson”? Who does it impact, more China or India, and is there a way we can overtake China in some areas? Let’s look at these aspects, along with areas where we can lead the world, including China, in manufacturing.

Dependence on China

India currently imports over $75 billion worth of goods from China, which is the largest source of imports for India. The US and other countries come next, but remember here that we do not buy defence equipment from China — and if you exclude defence, the gap between the No 1 source ie China and others will even larger. For China, India is the seventh- largest recipient of exports with a share of 3 per cent. So in case India does reduce its imports, it will have negligible impact on China.

On the other hand, India exports $16 billion worth of goods to China, which is about 5 pr cent of China’s imports.

So, India is quite dependent on China and if there is a disruption, it will impact several sectors and increase costs on most products for consumers/ industry, if we were to import from other more expensive sources. Several sectors will face significant disruption and cost increases:

Mobile phones: India is estimated to import mobile phone components worth ₹7,000-8,000 crore from China every month. Chinese brands are estimated to have about 60 per cent market share of mobile phones sales in India. This excludes Apple, which is not completely manufactured in China, as well as components that go into other non-Chinese brands. If we add these, the total share of China in mobile phones could be over 75 per cent.

Electronics and consumer durables: This industry is also heavily dependent on China for its components and finished products. There is a significant jump expected in sales of TVs, washing machines, dish washers etc post lockdown, which will result in more imports from China.

Solar industry: About 84 per cent of the solar requirement for the National Solar Mission is met through imports from China. India has plans of significantly enhancing its power generation through solar, and demand from China is expected to go up here too.

Pharmaceutical industry: There is a heavy reliance on Chinese imports for raw materials in the pharmaceutical industry. In some cases, such as life-saving drugs, the dependence on Chinese imports is 90 per cent. Similarly, most of the medical equipment is largely imported or dependent on Chinese components, including ventilators.

Textile industry: India has free trade agreements (FTAs) with least developed countries such as Bangladesh. Chinese fabric is manufactured into garments in Bangladesh, and imported at lower costs to India.

There are several other industries which are highly dependent on China eg. bicycles, firecrackers, small components, building material, toys etc.

So, we may end up shooting ourselves in the foot by stopping purchases of Chinese products in the short term. The better approach is to work at the national, State and industry levels to indigenise and produce more intermediates and products in the country, or finding alternate sources. However, these decisions need to be taken commercially, not based on sentiment or regulations. No one wants the government to dictate what is to be produced and how, which will mean return to Licence Permit raj.

Manufacturing potential

China has achieved its current status through clarity of strategy and effective implementation for over three decades, which can’t be overtaken or replaced in the short term. This is something we should realise and think through before making grand public statements which have the potential to irritate our biggest source of imports and hurt both manufacturing and consumption in the short term.

India is also far away from its target of having manufacturing cntribute 25 per cent of the GDP (something that has been discussed for over a decade) — currently, it is only at about 17 per cent. Clearly, we are not able to make that leap, and the current policies and strategies are not yielding adequate results.

India needs to think of a strategy based on its strengths, and retool several aspects of economy and the focus on implementation. With clarity of strategy in the medium-to-long term, we can achieve domination in some sectors of the economy through a combination of Indian and global expertise and capital. Experts usually focus on ease of doing business, consistent taxation policies, land acquisition and labour policies, which are well documented and debated.

Additive technologies

India can focus on one area where it can differentiate and attract global and domestic investors and be a leader in the future — additive manufacturing.

The next big thing will be 3D (additive) manufacturing, and robotics and automation. This is the confluence of manufacturing and IT. India is at the leading edge on IT and is also has a good base of advanced manufacturing, and thereby it has the platform to become a leader in this space globally. This can be the answer to China’s prowess of mass manufacturing, and if we can take the lead here in a decade or so, we can leave China far behind. So whilst China became the global leader in mass manufacturing, India can become the world leader in distributed manufacturing by focussing on 3D.

We need to approach this strategically and develop a holistic framework to achieve this. Some fo the actions to achieve this could be:

Set up a National Institute for Advanced Manufacturing to educate, research and develop technologies in this area. This can be done along the lines of ISRO, where the best global experts are invited to contribute and given adequate autonomy.

Identify the best global companies in this space and woo them to come and set up R&D in India.

Encourage Indian companies who venture into this space with tax breaks and other incentives ( being a nascent sector, this will not make any dent on the national budget).

Announce a fund like the ones being proposed by Govenment of India to invest in the equity of start-ups in this space.

Encourage government institutions like ISRO, NAL and other leading defence institutions to actively work on this with budgetary support. This will ensure that there are multiple people working on this area.

India identified this area early, and even announced the National Policy for Advanced Manufacturing as far back as 2016, but we are yet to see significant actions on this area by the government and industry. The time has come to focus on this area now.

We should take a strategic view and develop a clear plan for domination. Let us avoid being swayed by slogans which can cause more harm than benefit to reduce dependence on China. Let us focus on areas where we become leaders in fields of our own choosing.

The writer is Managing Partner, ECube Investment Advisors

Published on June 05, 2020

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