By NS Venkataraman*
Whether Government of India would admit or not, it is crystal clear that India is facing a war-like situation with China today.The most important thing that India needs to do now is to convey firm impression to the Chinese government that India would not buckle under pressure and military threat.
This is what many countries in the world, which understand the tactics of China and are concerned about it, expect from India today. After all, India has to confront China on several fronts, including trade and economic front.
While China has created huge capacities in several industrial and commercial sectors, the fact is that China is excessively dependent on the world market for it’s industries to operate at economic capacity utilization level , by marketing their product internationally. This is the area where China has to be confronted.
U S President Trump has understood this and that is why he has initiated trade war with China, which is getting silent approval from several countries. Very few countries criticise USA for its trade war moves, which has made Chinese economy weaker, though not still weak at alarming level.
It is high time that India too starts a trade war with China. While there is high level of clamour amongst cross sections of Indians to ban import of goods and services from China, some “experts” have been stating that ban on the import of goods from China would nearly paralyse the Indian economy. This view is not based on facts and not based on clear understanding of the ground realities in India.
In the year 2019, China’s exports to India were $68.3 billion, while India’s exports to China were much lower level, at $17.1 billion, largely consisting of minerals and natural products.
Of the exports by China to India, drugs and drug intermediates constitute around 65% of the total import of bulk drugs and intermediates by India from various countries. Most of the import of bulk drugs and drug intermediates is avoidable, as India has enough capacity.
For example, a number of units in India have capacities for the production of several drugs such as ibuprofen, paracetamol, metronidazole etc. and still India imports these from China, leading to under-utilization of capacity in India.
In the same way, India has adequate installed capacity for several chemicals, yet even such chemicals are being imported from China. Several examples can be readily pointed out. India imports around 1 lakh tonne per annum of citric acid from China. Ironically, India was producing citric acid and then closed its plants due to import dumping from China.
Several Indian units such as Hindustan Antibiotics, Torrent Pharmaceuticals and others were producing Penicilin G earlier, and all of them have closed operations due to import dumping from China, and now India is largely importing these from China.
Why is this situation? The reason needs to be understood and tackled.
India is importing several pharmaceuticals and chemicals from China not due to lack of production capacity or technological capability, but Indian buyers are tempted by the offer of low price from China. Also, China provides liberal credit terms of as much as six months to the Indian buyers from the date of Bill of Lading, after the Indian buyer would open irrevocable Letter of Credit.
The fact is that China is a non-market economy and several hidden subsidies and support are given by the Chinese government to help Chinese industries export its products at low price, and there is no transparency in such matter.
There are enough capacities for producing drugs like ibuprofen, paracetamol, metronidazole etc., yet these are imported from China, leading to under-utilization of capacity in India
What is particularly surprising is that several buyers and traders in India succumb to the temptation of buying products from China due to low price and liberal credit terms, even if the quality and specification of Chinese products would be less than that of the products produced in developed countries.
Curbing the import of products from China is now a national necessity to protect India’s interests. There are many non-essential items imported from China such as furniture, beddings, toys, mobile phones, televisions etc., which India can do without supply from China.
In the case of chemicals, bulk drugs, auto parts etc., the capacity utilisation of Indian industries should be improved and production increased by curbing import from China. There are enough capabilities in India with regard to such products.
Even in the case of renewable energy sector, solar cells are imported from China in large quantity, while solar cell producers in India are languishing.
The Government of India should make the price of Chinese goods in India expensive by imposing safeguard duty to protect the Indian industries and national interest. With such protection, Indian industries will have the opportunity to expand capacities, increase production and optimise production cost, which they are unable to do now, as they are unable to operate with confidence due to import dumping from China.
India has to learn from the strategy of US President Trump, who has imposed tariffs on Chinese products heavily to curb import from China. China has tried to retaliate by imposing tariffs on US products. In the process, both the countries have not bothered about the regulations of World Trade Organisation (WTO) and WTO rules have gone with the wind.
India also needs to impose such tariffs on Chinese products without excessively being concerned about the WTO rules, which should be relevant only in normal times. China is occupying Indian territory and has killed Indian soldiers. In such circumstances, India starting a trade war with China is absolutely appropriate. Even as per the WTO rules, safeguard duty can be imposed on the imported product by any country, if the domestic industry would be adversely impacted.
Certainly, a trade war with India would not destabilize Chinese economy in big way, but it would cause concern to China. This would make it clear to China about India’s determination to confront China and would be a trend setter for several countries in the world who are equally concerned like India about China’s greed, ruthlessness and territorial expansionist policies.
*Trustee, Nandini Voice For The Deprived, Chennai