Can orchestrated symbolism of smashing Chinese TVs create a mass movement when no domestic alternatives are available to our extremely price-sensitive consumers? writes Brig Deepak Sethi (retd) for South Asia Monitor
Prime Minister Narendra Modi’s clarion call for Aatamnirbhar Bharat, or a self-reliant India, and his ardent followers propagating its underlying message to boycott Chinese goods, was to channelize public anger and deflect the uproar on his gaffe during the all-party meet. However, is a boycott feasible in the contemporary closely intermeshed globalized economy? Knee-jerk pronouncements can create confusion since international partners, policy makers and industry could be wondering whether this heralds a radical policy change or is mere rhetoric.
No country in the world is entirely self-reliant. There are Chinese components, sub-assemblies and ingredients in innumerable products exported even by advanced nations. China is our largest source of such intermediates also in numerous products in our automobile, electronics, pharmaceutical and consumer goods sectors. Finding new vendors and reconfiguring supply chains is costly and takes time, which our industry, already battered by lockdowns, cannot afford. They would also lose their export markets due to the delays.
Chinese exports to India are barely 3% of its global exports, and hence a boycott would hurt us much more than China. Nevertheless, how will we execute the boycott? Higher tariffs to dissuade importers would inevitably attract increased retaliatory tariffs on imports from India. Besides, our exporters would also lose the large Chinese market. Can orchestrated symbolism of smashing Chinese TVs create a mass movement when no domestic alternatives are available to our extremely price-sensitive consumers? Some people might stop buying Chinese idols or decorative lighting, but their value is minuscule.
Several foreign firms that started manufacturing in India also use Chinese components. If we impede those imports, would they not move production elsewhere? Would this not discourage other foreign firms that are contemplating using India as their production base? Moreover, if China pulls out its large investments in many Indian firms, would it not hurt our economy.
Trade is not a zero-sum game
With strategic planning, incentives, an enabling environment, hard-working skilled workforce, and hidden subsidies, China became the ‘factory of the world’. It now has a sizeable presence in national economies worldwide and, as even Trump has realized, it is difficult to get it out or tame it.
Trade is not a zero-sum game as during the 18th and 19th centuries. Globalization helps achieve greater productivity and lowers consumer costs, since nations produce only those items where they have a competitive advantage and import the rest.
Nonetheless, the PM’s call for self-reliance is welcome but it has come too late, only as a reaction to Chinese aggression. Elected with a massive mandate in 2014, Modi should have embarked on an ambitious mission to make India a preferred manufacturing hub for the world by leveraging our natural resources, good industrial base, scientific talent and skilled English-speaking workforce.
More importantly, India’s tremendous geographical advantage of shorter and more secure sea lanes to North America and Europe makes us an ideal manufacturing hub for global majors. With our skilled engineers and specialists in many fields, we could also produce sophisticated products higher in the value chain. Regrettably, we chose not to pose a serious economic challenge to China, lulled perhaps by Modi’s dream of a 21st century Sino-Indian partnership and his bonhomie with Xi Jinping.
Nevertheless, even now we must identify sectors where we can achieve competitive advantage through scale economies, economies of scope, knowledge capital and systemic efficiencies. Building on our competitive advantage in software, firms like Infosys and TCS have already graduated from just programming for global IT majors to designing complete systems. They even acquired firms higher in the value chain from which previously they received programming contracts.
Boycott will delay economic recovery
The pharmaceutical industry also does value addition through drug formulations rather than dealing in basic drug ingredients. Likewise, there are several sectors where we can provide value-added goods and services in collaboration with global majors and eventually even compete with them. Ironically, the government has ignored vital sectors like armaments where we should be self-reliant, but instead it resorts to expensive imports.
There is no dearth of talent and enterprise in our country. However, lack of politico-bureaucratic vision, favouritism, crony capitalism, maze of archaic laws and red tape had frustrated entrepreneurs and hence there was flight of capital and talent abroad. Shrill economic nationalism sounds good for politics but makes no economic sense since consumers end up paying more.
Prolonged lockdowns have exacerbated the recession in the Indian economy. Production losses would inevitably lead to shortages and increased prices of goods and services. Boycotting of Chinese goods will further delay economic recovery and increase layoffs in affected sectors, adding to the burgeoning unemployment. These factors and higher budget deficits to finance incentive packages are bound to increase inflation, which might peak ahead of the critical parliamentary polls. Hopefully, PM Modi had deliberated upon all these factors before making his pronouncement.
(The writer is retired brigadier of the Indian Army and now professor of International Business Strategy and Management in the USA. The views expressed are personal. He can be contacted at firstname.lastname@example.org)