While India’s industrial growth is steadily forging ahead, the fact is that India’s dependence on imports from China for critical inputs to sustain industrial growth is also increasing at nearly the same rate as that of industrial growth. In short, in the case of several industrial sectors in India, the growth tempo would considerably slow down if imports of critical inputs from China were to be severely curtailed for any reason.
Harmonized code analysis of ten major industries in India shows that India’s cumulative import share of these sectors from China increased in FY 2022, reaching 47 percent, the highest in the last four years. During the period from FY 2002 to FY 2012, India’s trade deficit with China increased from $1.1 billion to $37 billion, eventually reaching an all-time high of $73 billion in FY 2022.
Over 60% of the Indian pharmaceutical industry’s inputs come from China. As a result, even a slight delay in imports from China can severely slow down manufacturing in the pharma industry. This situation is similar in many other sectors, including the renewable energy sector, where critical parts from China are required to increase installed capacity for wind and solar power generation. With 5 GW of cumulative orders since 2017-18, Chinese wind turbine manufacturer Envision Wind Power is India’s top supplier of wind turbines, surpassing entrenched multinational companies such as Suzlon and Siemens Gamesa.
Considering the political relations with China and China’s aggressive postures claiming Indian territory, there is certainly justifiable concern in India about increasing import dependence on China for equipment parts, intermediates, and finished chemicals, electronic parts, and so on.
In recent times, the Government of India has taken earnest steps to promote self-reliance in the country, introducing several proactive schemes such as Production Linked Incentive (PLI). While the Government of India can provide subsidy support and incentives to domestic players to boost domestic production, achieve self-reliance, and reduce dependence on imports from China, there is an issue on the technology front in domestic capacity building. Certainly, the technology base built up in China over the last several decades, which enabled China to make a big leap forward, is stronger than what India could achieve in the technology front.
Under the circumstances, the pursuit of self-reliance efforts in India is bound to be slow and a long-term affair.
Indian buyers often find that procurement of critical inputs and chemicals from China is cheaper, and the quality of the material in most cases is now on par with other international companies. As China has created huge capacity in several sectors and has many world-sized capacity plants, the response from the producers and traders from China to inquiries is often immediate, and delivery is done without delay.
Today, China has a mixed economy with government-owned units, private domestic units, and overseas units operating in China, and all three entities play almost an equal part in boosting China’s industrial and technological output. In the case of several products, multinational companies have built large capacities in China targeting not only the Chinese market but also the markets in Asia and Africa. In such circumstances, some of the items imported from China by Indian units are not from Chinese government-owned units or the Chinese domestic industry but from multinational units operating in China.
It also needs to be noted that while India has become a necessary importer from China, China also should feel that it is a necessary exporter to India due to the large capacity built up in China for several products, much more than China’s needs, and its excessive dependence on holding onto the export market. While India may not have a big share in China’s overall export trade at present, India’s share in China’s exports is a considerable figure that China cannot afford to ignore.
It appears that the conflict of interest between India and China on the political front will continue for a long time to come, given China’s territorial ambitions. However, business deals between both countries have to continue since such business deals are of mutual interest to both India and China.