KOLKATA: Is India enriching China and allowing it to occupy our land?
A study shows India pays more for goods from China that it could buy from elsewhere at a lower price since the era of cheap Chinese goods appears to be coming to an end. The land of dragons has struggled to keep its cost competitiveness going because of rising wages, land prices and taxes. The ascent of the renminbi or yuan has also made the world's largest manufacturer more expensive. The Sino-Indian bilateral trade took off during the last decade to nearly $70 billion (about 4.2 lakh crore) at the end of 2012 and is expected to touch $100 billion (about 6 lakh crore) in 2015. It certainly looks impressive, but the magnitude of uncompetitive imports calls for a relook at the bilateral trade policy, argues Prof SK Mohanty, who did a study on Sino-India trade relationship on behalf of the Reserve Bank of India.
The volume of uncompetitive imports from China rose from $4.49 billion in 2007 to $7.15 billion in 2008, but declined to $6.6 billion in 2009. The relative size of this to total imports was very high, ranging from 18.6% in 2007 to 25.4% in 2008. In fact, nearly one-third of 3,876 items imported by India in 2009 proved costlier.
"It is a matter of concern as the share of uncompetitive products in total is increasing over a period of time. They are both in terms of the number of products imported and also in value terms," says Prof Mohanty of Research and Information System for Developing Countries in the study titled 'India China Bilateral Trade Relationship'.
Uncompetitive imports are concentrated in four sectors -- chemicals, textiles, base metals and machinery with about 75-80% share of total uncompetitive imports during 2007-09. Imports of minerals, plastics, gems & jewelleries, and automobile parts from China have also turned out to be uncompetitive. The combined share of these eight sectors exceeded 93% of total uncompetitive imports during 2007-09.
Many believe the rising labour cost in China is to be blamed primarily. In fact, China is gradually withdrawing from the lower end of the textile sector, and if the trend continues, the production base of textiles and clothing will slowly shift to other countries, as has been the case with the textile industries of a number of East Asian countries in the past.
This could prove a blessing for India which has a large textile sector. Prof Mohanty suggests India should start preparing itself by getting into partnership with foreign firms to establish production centres on its shore for mass production of garments. "The Chinese phase-out from the garment industry may be an opportunity for India to replace it in the global market in a phased manner."
The automobile industry both in India and China has expanded rapidly during the last two decades and India enjoys a competitive edge in auto components, small-cars and two-wheeler segments. However, the study showed that India's imports from China in these product segments are turning out to be uncompetitive, and imports of these products can be managed efficiently from other competitive suppliers. India is also emerging as competitive player in the niche area of auto designing, which is related to the IT sector.
These trends indicate Indian firms can venture into the Chinese market in certain segments though they are likely to face strong competition from various domestic firms and also from other foreign competitors. The distribution of uncompetitive imports was skewed across various technology intensive sectors. While uncompetitive import growth was 43% per annum for medium-tech, similar estimates for the high-tech sector was 102.2% during 2007-09. India's imports in these two sectors are likely to grow in future in view of the current emphasis on industrialisation as discussed in the country's new manufacturing policy.
As an emerging country, India's import of intermediate products has been important for fostering industrialisation, meeting domestic demand and addressing its export needs. India is likely to gain from its engagement with China, but a realignment of the product basket may be needed to preserve India's long-term interests. This requires restructuring of India's domestic and external policies in the first place.