June 19, 2020 3:17:59 am
In the aftermath of Monday night’s confrontation between India and China in the Galwan Valley, there has been a growing clamour for a boycott of Chinese products — in effect, a demand to use trade as a blunt instrument of retaliation against China. The Department of Telecommunications has reportedly conveyed to state-owned BSNL that it must not use Chinese made equipment in its network upgradation plans, even as the government is “actively considering” asking private mobile service providers to reduce their dependence on China-made equipment. Another Chinese engineering company is likely to lose a contract with the Indian railways, and there is reportedly talk of cutting down imports of products such as electronics from China. While the demand for boycotting Chinese goods may make for good optics, at this critical juncture, there is need to exercise caution, and for a considered approach. The harsh reality is that economic retaliation will have its own set of consequences. As India accounts for a minuscule share of China’s export market, it will at best have limited impact on China. And the implications for India of such actions will play out at multiple levels.
To begin with, boycotting Chinese products is easier said than done. India is dependent on China for a wide array of goods, ranging from electronics to fertilisers — Made in China often helps Make in India too. Any attempt to reduce imports from China, operationalised through tariffs or other non-tariff barriers, will raise prices for Indian consumers. And as India also imports capital goods and intermediate products from China, such restrictions will affect domestic manufacturing competitiveness, and thus further erode the country’s export competitiveness. Moreover, in the short-run, ensuring uninterrupted alternative supplies may not be a feasible option. There is also the issue of Chinese investment in the Indian start-up space to contend with. Companies like Alibaba and Tencent have invested in “unicorns” such as Zomato, Paytm, Byju’s, Ola cabs and others. This relationship will be difficult to disentangle. The government will have to carefully think through the consequences of any policy action that it decides to pursue. Policy should flow from careful cost-benefit analysis, not be driven by knee-jerk reactions.
This is not to deny the need to build up domestic capabilities, across sectors. The long-term objective should be to push through long-pending legislation that aims to address the structural bottlenecks that continue to plague and hinder domestic competitiveness. India’s strategy should be to boost manufacturing competitiveness, and increase its share in world trade. But this is a long-term proposition. The short-run costs of boycotting Chinese products will be heavy and may even be counter-productive.
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