Every time we read about Chinese supporting Pakistan or blocking us in the UN, social media gets abuzz with boycott China. With the serious incursion in the border and 20 of Indian soldiers dead, the anger is justifiably high and clearly the calls for boycotting China & Chinese goods don't seem to be dying anytime soon.
What are our dealings with China?
China's share in equity FDI is a negligible 0.5% over the last 20 years!! Yes, the brouhaha over Chinese central bank raising its stake in HDFC to 1.1% is part of this too!! However, when it comes to start-ups, this picture changes completely. A February 2020 research report by think tank Gateway House on ‘Chinese Investments in India’ points out that 18 out of the 30 Indian unicorns with a valuation of more than $1 billion have total Chinese investment of more than $3.6 billion. These include some of the biggest brands like BigBasket, Byju’s, Dream 11, Flipkart, MakeMyTrip, Ola, Oyo, Paytm, Policy Bazaar, SnapDeal, Swiggy and Zomato. Of course, there is also the Chinese funded TikTok, which is the biggest video-app in India. Surely you are getting many video-forwards if you are yourself not on TikTok!
The bigger interaction is clearly Commerce with 14% of total Indian imports coming from China. India's trade deficit, while continuously declining, is still a huge $49 Billion; this was close to zero just 20 years ago. And every argument in Ban China points to this Trade Deficit.
India's imports are 3% of Chinese exports, while of our exports 6% go to China!! Absolute numbers are smaller but in % terms, clearly, it is a different story.
What is a Trade Deficit? And Is Trade Deficit such a bad thing?
I grew up in an India where getting a landline connection took years, and a second-hand car sold for a higher price than first hand!! All because of decades of poor policy where imports were discouraged and Indians were 'encouraged' to produce for our consumption!! The opening up of the economy during 1991 brought a plethora of choices and we Indians (producers and consumers) gained significantly from it.
Simply put, trade deficits happen when consumers, out of their own free will, buy one product against another. In India's case clearly, we find much more value in Chinese products that they in ours; that is why we import $4 to $1 that we export to them. After all, there is no one forcing me to buy OnePlus and yet, most of my friends own this; just one example of many. Having a choice is a great thing and surely this isn't the problem.
Also, the basic principle of division of labour is one where I do what I'm good at and outsource what someone else can do better.
As I read somewhere, "I run a deficit with my maid all the time. After all I pay her for her services and she never pays me anything. Does that mean Im worse off!!"
And How easy is it to Ban Chinese Products?
While most of the social media is abuzz with banning Chinese mobile phones, it is important for us to remember that there is a Chinese import in almost all aspects of our lives; not to forget Chinese investments in so many of our favourite Indian startups! The computer I'm typing this in, the phone that I'm using to connect with the external world, the medicines we all take to the power I generate at home (I use solar panels), Swiggy and Zomato I use to order food, all have ingredients that are in some way or the other Chinese!!
So what should we do?
Get better at the game...beat China in what it does very well. We have to produce better products and services to COMPETE at the global stage.
The current crisis provides India with a great opportunity. After all most countries and companies across the globe are looking at alternatives to China. Surely if we can become a world-class hub for IT services, what stops us from replicating this in manufacturing? But if we are going to sit back and expect work to shift to us...we are not going to go too far.
We have to support our companies in bringing their cost structures down and provide a much better business environment for them to operate. Land reforms, labour reforms, simplified GST, significant improvements in logistics, availability of capital, major incentives to exports are things we need to start immediately.
I have been to China and have seen the change they have brought about in 2+ decades up close and personal. You have to think of China as one large Conglomerate not disparate states in a large bureaucratic country!! Talk to anyone who is doing business in India, and you know we have a long way to go...but till we do the difficult long term reforms, boycott china will only be a slogan that raises its head again and again.
In every crisis lies an opportunity which is lost without focus!
We need to focus our anger and energy on the right topic....and this is NOT just about banning Chinese products!! Building an Atmanirbhar Bharat is about incentivising the consumers to shift to "Made in India" products and that happens ONLY when we become competitive at the international stage.
#atmanirbharbharat #banchina #tradedeficit #competition
Source: Moneycontrol, Deccanherald