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India's Trade Deficit With China Totalled $48.6 Billion In FY20: Motilal Oswal
Several sectors have material linkages with China, making it important to understand the sector-wise implications.
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India's trade deficit with China more than doubled from 20 billion dollars in FY10 to 48.6 billion dollars in FY20, implying massive surge in dependence on Chinese products, Motilal Oswal Financial Services said on Thursday.
Following the border skirmishes between India and China, the recent narrative has sparked debate around India's boycott of Chinese products. Unless dependence is reduced, a cold shoulder by India may not be feasible, it said in a report.
Several sectors have material linkages with China, making it important to understand the sector-wise implications. Auto, consumer durables, pharmaceuticals, telecom, chemicals and renewable power sector (solar) seem to be the most dependent in terms of sourcing from China.
Also, said the report, there appears to be a lack of alternative suppliers in many cases at the same scale or costs. While consumer durables are dependent on China for components, pharma is dependent for active pharma ingredient (API) sourcing.
Telecom is dependent on China from a network standpoint as well as for 4G smartphone handsets as China caters to more than 75 per cent of the Indian handset demand.
Various sectors have material inter-linkages with China and form a critical part of the supply-chain for many firms in India.
"Any potential escalation between the two nations could increase operational and supply-chain risks in the current economic backdrop even as economies look to recover from the pandemic," said the report.
"Overall, it will be difficult and expensive for Indian firms to immediately find alternative suppliers. Structural reforms are crucial for manufacturing competitiveness and reducing long-term dependence on China."
In the short-to-medium term, deep inter-linkages of several sectors preclude any meaningful retaliation on the trade front, said the report.
However, as the world looks to de-risk its supply-chain from China given the backdrop of the Covid-19 pandemic from a long-term perspective, the need for emphasis on Indian manufacturing gets reinforced now.
Further, the Indian government has also announced several measures to drive self-dependence in various aspects (Atmanirbhar Bharat).
For a sustained change, however, structural reforms encouraging manufacturing (ease of doing business, ease of compliance burden, etc) and market reforms (land, labour and capital) will augur well to augment India's manufacturing competitiveness.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.