China: Adversary or Associate?

Associate or Adversary are the best nouns to define the two diametrically opposite facets of the India–China relationship. As per the Cambridge dictionary, Associate means ‘someone who is closely connected to another person as a companion or business partner.’ Can we visualise China as a potential collaborator and partner for mutually benefiting from synergies in a fiercely competitive global market? Is it the moment to ask this question and whether it is a choice that we have?

This is a contrarian view but it has relevance when we consider our experience in trying to achieve our vision of Make in India and Atmanirbhar Bharat. The road has been uphill, bumpy and the progress tardy. While there is light at the end of the tunnel, we need to relook at our strategy and reprogram ourselves to improve our prospects and accelerate our progress.

The hostility in relations between the two most populous countries is well known. The aggression towards each other, regardless of who initiated it, is of deep concern. However, it is also painfully clear that the two countries need each other and can benefit by mutual cooperation. India especially has a chronic dependence on imports from China which impacts our markets as well as our industry and the vision for Make in India. Imports from China continue to soar, and the latest number shows an 11% increase from US$42 Bn to 46.6 Bn comparing the 5-month period from April to August between 2023 & 2024. This surge in imports is of greatest concern for our sector because the highest increase is in case of HS Codes relating to electronics such as telecom, laptops, computers and machinery, all from the ESDM domain. There has also been a massive increase in imports of flat panel display modules, ICs & micro assemblies and other semi-conductors.

I am constrained to share another important data point which raises questions about our exports of mobile phones which are covered under HS Code 8417. Between 2022-23 and 2023-24, under this HS Code, exports increased from INR 1.02 Lac Crores to 1.40 Lac Crores, equivalent to US$ 17 Bn, an impressive growth of 37%. Against this, under the same HS Code, imports increased from INR 1.25 Lac Crores to a whopping INR 1.36 Lac Crores, amounting to US$ 16.3 Bn. This is 97% of our exports related to mobile phones and highlights the extreme import dependence that our star export product is struggling with. Are we achieving our objective of establishing a sustainable electronics manufacturing ecosystem? Is our taxpayer’s money being spent on creating long-term value for the country and our citizens?

This further raises questions about the strategy we have adopted to achieve the vision of Make in India. The stress in bilateral relations with China has compelled us to protect our industry and adopt a policy which restricts imports from China. This policy we believe, would encourage our industry to augment its capabilities and become self-reliant. There are convincing reasons for India to follow this route as there are several products which are being dumped in our markets at below market prices, injuring our industry. The most critical reasons are security risks and harm to the domestic manufacturing industry. There are other issues which from India’s point of view amount to restrictive trade practices by China, but Indian importers have to bear with the same as we do not have the necessary clout in the global value chain or capacity to negotiate.

It is observed that Indian manufacturers are facing several challenges in their operations due to this restrictive policy. There are delays in movement of materials and people from China to India for technical support. Several manufacturers have suffered losses as their capital equipment was stuck at ports and due to delays in visas for engineers from Chinese suppliers for installing and commissioning the equipment. This has been more detrimental for us than for China. China is also a supplier of several raw materials and parts which are not available locally. Thus while the intention of these restrictions is salutary, the outcome has often been adverse. This is corroborated by the soaring imports from China to meet the domestic and export demand in India, in spite of restrictions. Thus, we need to exercise discretion and choose the best options for us.

In view of the above, we need to question whether it is necessary to review our policy vis-à-vis trade with China in our national interest. Ad hoc restrictions on imports are not going to work. Imports of raw materials for manufacturing electronic equipment and assemblies are critical. These cannot be restricted or subjected to high import duties, especially as we do not have local or alternative sources. Capital Equipment is even more critical as creating viable options is a bigger challenge and needs more time. The above facts and the outcome of our policy of treating China as an adversary are clearly not in our favour. We need a more balanced approach to ensure that we enhance our capabilities and establish a self-reliant value chain. We need to develop essential and critical inputs, raw materials and invest much more in R&D. Assembly of equipment is only the first step which can help us for now in establishing supply chains and serving our markets. But this will never give us value or create a sustainable and self-reliant ecosystem. The PLI Scheme has given us a head start in manufacturing products. However, such support will not be perpetual and the industry needs to strengthen itself and do deep value addition. The key strategic shift required here is to encourage the import of technology and design products and components for domestic manufacturing, creating a resilient and sustainable ecosystem for the ESDM industry.

Rajoo Goel
Secretary-General

Electronic Industries Association of India (ELCINA)