One of the non-medical impacts of Covid-19 has been the race among politicians all over the world to produce goods within their country rather than import them from China. In India, a narrative of self-reliance is being propagated. The logic is simple. If people buy products made fully in India, Indian businesses will benefit, and the economy will do well. QED.
This logic is all wrong. India saw more than four decades of import substitution between 1947 and 1991, when imports were discouraged, and Indian businesses were encouraged to produce for Indian markets. ‘Atmanirbharta’ is nothing but import substitution with a new name, which can be sold well over WhatsApp and other social media.
The quality of most products during the import substitution days was quite bad. As the economy opened up after 1991, the choice of products on offer in the open market went up dramatically. This is primarily because there is competition among firms.
When import substitution is the norm and companies need to produce just for the internal market, almost anything goes, simply because there is very limited competition internally, and companies know they can’t compete in the international market anyway. If you are wondering why many Indian companies still can’t compete on the international front, herein lies the reason. Indian firms aren’t productive enough.
This explains why imported products from China have become so popular over the years. Imports from China peaked at 16.4% of overall imports in 2017-18. They fell to 13.7%, after we started making imports from China an ego issue. Between April 2019 and February 2020 (the first 11 months of 2019-20), imports from China rose again to 14.1% of all imports.
It is worth remembering here that no one is forcing Indians to buy Chinese products. But they still do so, simply because they offer more value for money than a locally produced one.
Imports from China peaked at $76.4 billion in 2017-18 and fell to $70.4 billion in 2018-19. In the first 11 months of 2019-20, they have stood at $62.6 billion. Almost 97% of these imports were manufactured products. Chemical products, engineering products and electronic goods form 19.5%, 30.9% and 31.9%, respectively, of the overall imports from China.
There is a Chinese import in almost all aspects of our lives. The medicines we have (ingredients that go into making medicines are imported from China). The electricity we use (electrical machinery is imported from China). The computer I am typing this piece on (most laptops are assembled in China). Even the milk I use to make coffee is dependent on Chinese imports (industrial machinery for dairy). The food we eat may have used fertiliser imported from China.
Hence, mobile phones are not the only products being imported from China. The interesting thing is that mobile phone imports have gone down over the years. Nevertheless, Rekha Mishra and Anand Shankar of Reserve Bank of India’s international trade division point out that the “decline in mobile phone imports has been accompanied by an increase in imports of mobile phone parts.” So, mobile phones are basically being assembled in India, which is a very low value-adding activity.
This has happened as customs duty on mobile phones has been increased over the years making imports expensive. As Philip Coggan writes in More in the context of making imports expensive: “It is possible that companies will switch to domestic suppliers. But those suppliers are bound to have higher costs. If they did not, companies would not be importing the product in the first place.” This higher cost of self-reliance will ultimately have to be paid by the Indian consumer.
Interestingly, other than wanting the country to be self-reliant, the government also wants Indian manufacturers to become a part of global supply chains of big companies. This is where the contradiction is inherent.
In order to be a part of global supply chains, companies need to be able to compete globally. How will they become competitive by only producing for the domestic economy and not facing international competition?
Hence, rather than clamping down on imports and promoting the narrative of self-sufficiency mindlessly, it makes more sense for the government to work towards creating an environment which allows Indian entrepreneurs to become more competitive. This includes doing away with tax terrorism, not changing regulations frequently, improving physical infrastructure, doing away with inspector raj, and so on.
Also, when it comes to Chinese money, a research paper published by the think tank Gateway House, points out: “Chinese tech investors have put an estimated $4 billion into Indian start-ups. Such is their success that over the five years ending March 2020, 18 of India’s 30 unicorns are now Chinese-funded.” These include some of the biggest brands like BigBasket, Byju’s, Dream 11, Flipkart, MakeMyTrip, Ola, Oyo, Paytm, Policy Bazaar, SnapDeal, Swiggy and Zomato. Of course, there is also the Chinese funded TikTok, which is the biggest video-app in India now.
People who want to boycott China should start by not giving their money to these brands and finally work their way up to figuring out if the electricity in their house is being produced by machinery imported from China. The point being, Chinese products and Chinese brands are so well-entrenched in our daily lives, it is impossible to boycott them. The only thing we can possibly do is compete.