China has surpassed the United States to become India’s largest trading partner with a two-way commerce worth $118.4 billion in the fiscal year 2023-24. The bilateral trade between India and the US stood at $118.3 billion during the same period, news agency PTI reported.
The trade relationship between India and China has risen despite geopolitical tensions and border disputes.
Even as Indian exports to China increased by 8.7%, the data highlights India’s reliance on China despite government efforts to boost domestic manufacturing and reduce imports.
Smartphones
The smartphone sector is one of the areas where India is reliant on China. Data from Counterpoint Research reveals that Chinese smartphone brands continue to maintain a significant market share in India, despite various government initiatives aimed at promoting domestic manufacturing.
Efforts such as the Production Linked Incentive (PLI) scheme, which excluded many Chinese brands like OnePlus and Xiaomi from claiming subsidies, and Make In India, which aimed to localise smartphone production in the country, have not been able to dent China’s dominance in the Indian market, the Hindu Business Line reported.
Affordability of Chinese smartphones with advanced features coupled with the price-conscious consumers in India have contributed to a sustained market dominance of Chinese brands.
While global brands like Apple and Samsung have benefitted from government incentives and increased their manufacturing presence in India, their market share has remained relatively stagnant, the newspaper reported. At the same time, Indian brands like Lava Mobiles that have benefitted from government schemes have struggled to gain traction, with market share declining over the past four years, the report said.
According to analysts, the success of Chinese brands in the Indian market can be attributed to their ability to align with the government’s vision for domestic manufacturing, despite not directly benefiting from government schemes.
“While Make in India is a great initiative, it has missed the fundamental necessities of creating products and manufacturing in India. Our investment efforts have largely gone into contract manufacturing, rather than designing and developing Indian IP. What Chinese brands did is they saw this as an opportunity to align with the government’s vision without necessarily benefitting from the schemes and bring their assembly lines to India. This has allowed them to thrive in the India market despite government efforts,” Faisal Kawoosa of TechArc told the business daily.
Pharma sector
Moreover, India’s significant dependency on Chinese imports extends across various product categories, encompassing semiconductors and pharmaceuticals.
For the pharmaceutical industry, India is heavily dependent on bulk drugs and intermediate/producer goods from China. These are essential raw materials used by the Indian pharma industry to manufacture finished products for domestic consumption and international trade.
India’s 43% of the total pharma imports are from China, the Economic Times had reported in February 2023.
Nearly 66% of India’s Active Pharmaceutical Ingredients (APIs) came from China in the first nine months of the financial year 2022, The Wire had reported in June 2023. APIs, also known as bulk drugs, are the active components that produce the required effect on the body. For example, Paracetamol is an API for Crocin.
However, as part of the PLI scheme, 35 drug raw materials, which were imported before, are now being manufactured in India, the report added.
ET reported that India’s dependency on key starting materials (KSM) from Beijing exceeds 50%. It added that India’s dependence on China for APIs, KSMs, and basic chemicals has rather been alarming and needs a resolution. It further said that PLI has not cured the Chinese import problem.
Electrical products
As per the economic think tank Global Trade Research Initiative (GTRI), India’s imports of electronics, telecom, and electrical products surged to $89.8 billion in 2023-24, with more than half of these imports coming from China and Hong Kong.
China holds a dominant position, capturing 43.9% of India’s imports in the electronics, telecom, and electrical sectors.
The GTRI report warned that reducing this dependency is crucial,to safeguard India’s digital and technological sovereignty in a world that is becoming ever more interconnected.
Separately, in 2022, India imported $4.55 billion in semiconductor devices, mainly from China ($3.1 billion), Singapore ($332 million), Hong Kong ($214 million), Vietnam ($198 million), and Thailand ($182 million).
Moreover, this reliance on Chinese imports exposes severe vulnerabilities within India’s supply chain, per experts.
But is it possible to slow down trade with China?
Arun Kumar, retired professor of economics at the Jawaharlal Nehru University, had told The Wire that India cannot completely put a stop to its strategic reliance on the import of certain crucial products.
“Slowing down trade with China will require us to go to alternate sources and they are more expensive than China. Thus, it will increase our production cost. Diversifying our import sources will be inflationary. So, unless we do something about our technology, infrastructure, and production of goods at scale, we will not be able to compete with China,” he said.
Professor Arun Kumar said that India needs to focus on improving its technology.
“We need to have a technology policy. Unless we become more dynamic in terms of our technology development, in terms of our capital mobilisation, we will be dependent on some source or the other. To make our technology more dynamic, we need to do R&D [research and development),” he said.
“India is weak in that [R&D investment]. We are only spending 0.75% of our GDP on R&D whereas China spends 3.5%. The Chinese economy is five times bigger than ours. So, of a five times bigger economy, they are doing five times more R&D, which means they are spending 25 times more than us,” he explained.
“We need to step up our expenditure in critical areas and develop our technology to compete with China. To do R&D, we need to give high priority to education. We are creating a variety of problems in higher education. So even though we have good universities, they are suffering as a result of the fact that there is too much interference from the political and bureaucratic bosses. Thus, an R&D environment is not [being] created.”
