New Delhi: India has already been imported from China across $89 billion in the first three quarters of 2022 and is set to cross $100 billion by the end of the year, primarily driven by capital or industrial goods.
This is despite calls for a boycott of Chinese goods in the wake of border tensions between the two countries.
In 2021, as of September, India imported goods worth $62 billion from China, according to data from the Ministry of Commerce and Industry, a 44 percent increase in just one year.
The growth in imports of Chinese goods is much higher than the growth in India’s overall imports. Between January and September 2022, India’s total import bill stood at about $551.8 billion, a 35 percent increase from last year’s import bill of $406 billion.
The sharp increase in imports from China means that its share in India’s total imports has increased from 15.3 per cent in 2021 (January-September) to 16.2 per cent in 2022 (January-September).
A closer look at India’s foreign trade with China reveals that most of the increase in imports is due to “input goods” or capital goods, which are used to produce other goods.
The UN’s Comtrade database shows that India’s imports from China are increasing largely due to imports of capital or industrial goods. Over the past 10 years (2011 to 2021), India’s capital goods imports from China have grown by an average of 4 per cent every year.
In India, the Ministry of Commerce and Industry has provided unit-level data for the types of goods imported as of August 2022.
Of all the goods that imported more than $1 billion in 2022, “iron and steel” saw the largest increase in imports from China. During January-August 2021, India imported iron and steel worth $0.74 billion. That figure was $1.14 billion in 2022 – a 54 per cent jump.
Similarly, imports of plastics and their goods from China are also proportionately higher in 2022. According to the ministry, India imported plastics worth about $4 billion in January-August 2022, compared to $2.7 billion in the same period of 2021.
Electronics and electrical machinery and their parts – which accounts for about a third of India’s imports from China – also grew 37 percent from $16 billion in 2021 to about $22 billion in 2022.
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Producers are the main beneficiaries
In India, calls for boycotts of Chinese products – mainly consumer goods – are often made in the wake of bitter border relations. However, statistics show that India’s imports from China have never been dominated by consumer goods and hence the boycott will not have much impact.
In 2021, according to Comtrade data, India imported $2.84 billion worth of consumer goods from China, which is not even a tenth of its total imports from the country. Consumer goods imports from China declined by an average of 1 per cent from 2011 to 2021. However, this has more than compensated for an average annual growth of 3 to 4 per cent in imports of capital and industrial goods from the country.
The data goes against the popular belief that consumers are the driver of imports from China. In fact, it is the Indian manufacturers that are heavily dependent on Chinese imports.
According to the data, about 40 percent of India’s total capital goods imports came from China in 2021.
So why is it that our industries have to depend on Chinese input goods?
One answer is that the Chinese are quite competitive in the intermediate or input goods market, and that both pricing and logistics work in their favor, according to Son Ray, visiting professor at the Indian Council for Research on International Economic Relations.
“The reason why our manufacturers choose Chinese capital goods is the price they offer,” Ray told ThePrint. “The economy of scale and other factors allow China to offer a competitive price, reducing the input cost of production. Alternatives may be available from Germany or another industrial goods-savvy nation, but Chinese inputs are competitive. .
He said that import of capital goods also gives impetus to domestic growth.
“Importing capital or industrial goods means the product is going to come into our value chain (for domestic use or export),” Ray explained. “It will create employment and increase production activities, which are useful for a nation. Going for expensive options is not viable. ,
India’s imports are also dominated by electronics and electrical machinery, which Ajay Sahai of the Federation of Indian Export Organization considers a relief.
“It is good that electronics and electrical machinery form a major part of India’s imports from China, as India is moving ahead in localization of manufacturing of these products,” Sahai said.
“The government has announced financial incentives to electronics manufacturers in the country in the name of ‘performance linked incentives’,” he said. “A lot of investment has already come into India, which should start yielding results in the coming years. We are seeing slowdown in both overall imports of electronics and goods imported from China.
Bornali Bhandari, Senior Fellow, National Council of Applied Economic Research, also believes that Chinese manufacturers have an edge over global manufacturers due to the cost of doing business and scale of operations.
“But whether India benefits from imports of capital goods from China needs a detailed investigation,” he said. “We need to find out how much value addition is being done on these Chinese input goods coming into India. The more value addition is done at home, the more it is produced, the more employment it provides and vice versa. This requires a region-by-field analysis.”
(Edited by Nida Fatima Siddiqui)
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