Take aim before shooting

Context: The recent clamor over boycotting Chinese imports in India is a futile exercise and will hurt itself. Careful aiming of actions is required.

Issues with India’s trade 

• Massive Economic stature of China: 

• • • • India accounts for only 3% of China’s total exports of about $2.5 trillion.
      • Huge foreign exchange reserves of about $3 trillion.

• Costly indigenous production: India had virtually stopped manufacturing even the most ordinary goods, and even if it is made, are costly, ending up with consumers paying more.

• India’s dependence on China: Risks of disruption along the supply chains due to no ready substitutions.

• • • • Market dominance of China in certain products like strategic materials.
      • Sourcing from alternative suppliers would be costly.

• Futility of free trade argument: 

• • • Britain became a free trader only in the 19th Century when it established a clear lead in the Industrial Revolution.
    • The US, once the champion of free trade, is now shifting positions.

• India as a soft state : has been vulnerable to special interests.

• • • This will lead to India becoming a high-cost economy and more uncompetitive manufacturing.

• Seeking trade parity: with every partner is not feasible and should be avoided.

Way Forward:

• Import substitution: Many other countries have successfully managed by ensuring temporary tariff support and reducing with time; those who failed would shut down- ensuring market discipline.
• Maintain overall balance: loss in merchandise trade could be gained through services; as long as the balance is neutralized by capital inflows.
• Restrict China’s Access:  to strategic markets like telecom (prone to spyware mischief), product segment (with poor quality, For E.g. thermal power plant equipment).
• In pharmaceuticals or software services, where China is doing the same for Indian exports.