Take aim before shooting

Business Standard 20th June 2020 Save

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).