Frosty India-China trade ties could be another Himalayan blunder

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India and China have been uneasy neighbours for decades, but they still managed to grow bilateral trade. However, a recent border clash over the Himalayas are turning ties increasingly cold as New Delhi takes steps to hit Beijing where it hurts most — business.

After India delayed customs clearances of goods imported from China, the Bureau of Indian Standards (BIS) is drawing up a list of 371 products seen to be of poor quality, with a particular focus on products made in China, an Indian commerce ministry official said.

India appears to have taken a leaf out of China’s playbook, which has often resorted to erecting non-tariff barriers to protect domestic players. While New Delhi’s intent seems to be driven by a desire to punish Beijing, trade executives suggested a calibrated approach might be more advisable.

“Whatever is done for imports including from China, you have to apply to Indian producers as well. This is an additional cost which Indian companies will have to bear,” said Biswajit Dhar, professor of trade at new Delhi’s Jawaharlal Nehru University.

“Ultimately the cost will have to be borne by the consumer. But the question is when the market is depressed, would any price hike help the industry at all?”

Focus on domestic capability

Dhar noted that it took China a good part of the past decade and a half to slowly, but surely, capture the Indian market across a very broad range of products.

He advised that India can not undo the mistake of not building enough manufacturing capacity suddenly, and therefore needed to build up such capability over the medium term before clamping down on Chinese imports.

In the past, New Delhi has imposed anti-dumping duty and safeguard duty on Chinese imports of steel and aluminium which were undermining domestic players.

Since then the domestic steel sector has overtaken Japan as the world’s second largest steel producer. India also has significant capacity in aluminium

However, India is still overwhelmingly dependent on China for a number of products including supply of bulk drugs, colour televisions and mobile phones. China currently accounts for around 14% of India’s imports and 0.5% of its exports.

Trade with the world’s second-largest economy has expanded more than 18 times since 2002-03, when China was grappling with the SARS virus.

Interestingly, post the covid-induced lockdown, Indian exports have recovered to a large extent on the back of demand from China for steel and iron ore.

Indeed, the Confederation of Indian Industry (CII) President Uday Kotak underscored the need to look beyond government spending and facilitate trade to push economic growth.

“Exports need a quantum jump, and to achieve this, integration with global and regional value chains is important, besides being competitive,” he recently said.  

India Inc Needs Stable Policy Regime

Vinod Sharma, chairman of the Confederation of Indian Industry’s electronics committee, said that domestic companies were perfectly capable of matching Chinese manufacturers provided they were confident of a steady and supportive policy regime.

The problem with measures such as suddenly raising quality standards of imports would be that India may find it difficult to find enough laboratories to test products, irrespective of whether they were made in India or China, he said.  

“Test labs are not available or too hard pressed. The moment you put over 300 items for higher import standards, there will be a rush at the labs,” he said, adding that there could be a huge backlog for six months for Indian and Chinese imports.

A trade executive, who did not want to be identified, said the Chinese often manage to get such certification faster than Indian counterparts by getting them processed through specialised importers.

Similarly Chinese manufacturers are able to circumvent  standards specified for manufacturing facilities by incorrectly declaring that most goods are manufactured in one giant factory with such certification, the person added.

“We can challenge it, but we cannot conduct any investigation on a factory located in China,” the person said. “But in India, we cannot misdeclare like this.”

The other problem is that the surveillance mechanism in India to check whether quality certification declared by a laboratory is genuine or not is weak.

More than 50% of the LED lights in the Indian market, a majority of which come from China, are believed to be spurious, said another executive.
“BIS are very happy in coming to factories and taking samples. But they won’t take samples from the market,” the person said. “We  fail as always in the last mile implementation of standards.”

Ajay Sahai, director general of the Federation of Indian Export Organization (FIEO), said that the move to introduce higher standards on import of products was well-intentioned at providing Indian consumers good quality products as well as improving competitiveness in manufacturing.

He said that the work on improving quality of products had been in the pipeline for at least a couple of years. However, the timing of their introduction during India-China border tensions is being misconstrued as attacking Beijing.

Overall, industry executives said that India’s interests would be better served by building up on Prime Minister Narendra Modi’s vision of a self-reliant economy by improving the capability of individual sectors rather than just tit-for-tat trade measures.  

Biman Mukherji is a columnist and consulting editor at Indoasiancommodities.com. He has worked for international news organisations such as Reuters, The Wall Street Journal as well as for newspapers like The Times of India. He can be reached at biman.mukherji@indoasiancommodities.in

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