A calibrated call rather than "sudden stops" is required to lower India's import dependence on China, the country's largest lender State Bank of India (SBI) has said in a research report.
In terms of numbers, India's dependence on China is the heaviest in low-value imports, said the report that comes at a time when India is looking to address the trade imbalance with its biggest trading partner amid a prolonged and bloody border standoff.
“Clearly, China has slowly and steadily built a solid base in both high and low-value imports into India. We thus have to clearly take a calibrated call in reducing our import dependence from China and not through sudden stops,” said the report.
In the last few weeks, FDI norms for investors from China have been tightened, 59 Chinese apps banned, contracts put on hold and tenders scrapped.
The ties between the two countries are in a free-fall after a clash along the Line of Actual Control in Ladakh’s Galwan Valley on June 15 killed 20 Indian and an unspecified number of Chinese soldiers.
China accounts for 18 percent of India’s imports and only 9 percent exports. The bilateral trade amounted to $103.5 billion in the April 2019-February 2020 period.
"At an 8-digit level, there were humongous 6,844 products imported by India from China. The good thing is that for FY20 compared to FY19, there is a drastic reduction in the value of products in which India's import dependence on China was between 50-60 percent," the report said.
Over 800 products (worth $3,944 million) from China with an import value of less than $100 million each account for more than 90 percent of India's imports, the report said.
Also read: Exclusive | India likely to announce hike in duty on imports from China in next two-three months
Such products include organic chemicals, machinery and mechanical appliances and electrical machinery, textiles and textile articles, products made of iron and steel, toys, and furniture.
"Although the ban on 59 Chinese apps, which are quite popular in India, is based on security concerns, it does provide the local tech companies the space to develop apps which can compete with them. India ,with its huge IT base can thus focus more on services while building capabilities in goods exports will take more me to improve its overall trade balance," the SBI report said.
The ban, it said, gave domestic firms an opportunity to develop apps that can compete with the banned Chinese ones.
The Centre on June 29 banned 59 Chinese apps, including popular video sharing platform TikTok, citing threats to national security.
Citing anecdotal evidence, the report said local business players find it less difficult to conduct business in China. Data also suggests that while it is cheaper to export from India rather import to India, the time required to meet border and regulatory compliance requirements is one reason why business players prefer China.
"We do have a cost advantage in exports but we need to increase the efficiency to successfully overtake China," the report said, highlighting one of the reasons why the country is the world's manufacturing hub.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
