The Myth of India's Import Dependence

Context: 

• In light recent trade war between India and China, rather than focusing on import substitution or export promotion, the aim should be to increase Indian productivity.

The Myth of Import Substitution: A closer look at the India China trade compositions reveals that the India is capable enough to sustain the loss of trade.

• Reduced Imports: 

• Declining global trade due to the COVID pandemic: leading to more decline in imports, including from China.
• Import of Luxury goods: will prove to be no harm as they essentially feed the consumption of Indian elites.
• Alternatives Sources: Major imports which can be alternatively sourced consists of:
• Organic Chemicals and Pharmaceuticals, which can be made in India.
• Electrical Machinery
• China’s investment is not large: They are also restricted to strategically insignificantly areas like financial services and food delivery operations.

Structural Flaws in India’s Trade Matrix:

• Typical Current Account Deficit: India usually imports more goods and services than export.
• Leads to an economy with the pattern of consumption becoming more import-intensive.
• Even after reducing imports from China, India has shifted its imports to other countries like the US, Vietnam, and Bangladesh, keeping the current account balance the same as before.
• Low productivity: India still imports stuff which can be manufactured at home due to low productivity as compared to China.
• Mass market items like synthetic textiles, toys, and plastics are also uncompetitive with Chinese imports.
• Flawed growth story: India’s growth is highly dependent on the consumption power of its population which is unfortunately disproportionately weighed towards imports from China.

Way Forward: must focus on what, rather than how much we consume to counter our strategic vulnerability on the trade front.

• Restructuring the trade matrix: strive for making agriculture, textiles, affordable housing, health, and education as the leading indicators of its economic growth.
• Improve productivity in cheaper synthetic textiles and apparel industry and locate regions of lower-wage northern and eastern India to ensure competitive prices. 
• Demand on infrastructure, logistics, and intermediates could be sourced form indigenous manufactures.
• Deliver quality and affordable education to reduce the number of children going abroad for it.