Ever since India squared off with China over the Himalayan border issue, the trade ties between the two countries have come under strain. As a retaliatory measure India recently banned 59 mobile phone apps promoted by China-based companies, including TikTok, WeChat and Helo.
The government said these apps were engaged in activities “prejudicial to sovereignty and integrity of India, defense of India, security of state and public order.” It alleged that the action was being taken following complaints that these apps were being misused to steal and transmit users’ data in an unauthorized manner to servers located outside India.
For companies dependent on imports from China the supply has taken a hit as shipments are getting delayed at some ports, including Chennai and Mumbai, for the past two weeks. Customs authorities have indicated to importers that there will be delays in clearing Chinese shipments, but have not cited any reasons, Indian Express reports. Importers see this as a nudge by the government to change their import pattern, especially of non-essential goods.
But the fact remains that India is heavily dependent on Chinese imports and the trade balance between the two countries heavily tilts in China’s favor. In 2019-20, India sent goods worth $15.5 billion to China, covering 3,284 product categories as per an eight-digit export-import classification code. The same year, China shipped $62.4 billion of goods to India, covering 6,809 product categories. For India, that’s a negative trade balance of $46.9 billion. The value of the top six items of India’s imports from China exceeded the value of the top 50 items of India’s exports to China.
Chinese imports range from gadgets to toys, simple to complex, essential to non-essential, raw materials to intermediates to finished goods. The director general of foreign trade had stated in March that the three top categories of imports from China are: electronics components (9.15%); telecom equipment (8.57%); and computer hardware and peripherals (6.37%).
Several Chinese smartphone companies in India are staring at a production halt in their manufacturing facilities as import curbs on China have impacted the supply of components. Even Foxconn, the supplier of Apple iPhones, has been forced to cut its production because more than 150 shipments – containing smartphone and electronic parts – were stuck at Chennai port. This could impact e-commerce platforms and even lead to price increases. Chinese brands such as Xiaomi, Oppo, Vivo and Realme collectively command nearly 80% of sales in the Indian mobile phone market.
The current import curbs are expected to hit India’s pharma industry exports. India is the largest exporter of generic drugs but it is heavily dependent on China for the supply of active pharmaceutical ingredients used in these products. Overall India sources 70% of these ingredients from China and in the case of drugs like paracetamol it is 100%. Hence any curbs on imports of these ingredients may cause significant disruption to the Indian pharmaceutical industry.
Various government agencies and trade bodies are now coming up with proposals to reduce their dependence on Chinese imports and incentivize domestic production. India is also looking at building alternate supply chains with partners in East Asia, Europe and the US. But this will take time and depend on competitiveness.