Recent happenings along the Line of Actual Control (LAC) have triggered reaction from all sections of the public. Apart from diplomatic methods, intellectuals have suggested converting the border war into trade war by boycotting purchase of Chinese products. As per their theory, the money Indians spend in buying Chinese goods eventually ends up being used to fund disturbances at the border.
The intention behind such agenda looks fair – making public a part of decision making process in international affairs. Owing to WTO regulations and fear of retaliation, the government cannot unilaterally ban imports from China. But the consumers i.e. Indian citizens can reach to similar result by buying substitutes to these products, thereby reducing demand naturally. On one hand this satisfies the emotional objective (feeling of revenge among the public) while on the other it leads to the desired outcome i.e. reducing the outward fund flow across the border. But the question is – to what extent will the objective be achieved?
A look at the trade statistics gives the answer. China being a highly competitive manufacturing country is the export hub of the world. But exports to India are a meagre 2-3% of its total exports, which means if Indians boycott Chinese imports, it won’t hurt China to the extend intended. But worse will happen to them as Chinese imports account for 14% of the total imports of India. This fact can also be represented by saying that 14% of the import requirement of the country is met by China because of its cost effectiveness. Replacing them with other costly imports like those of Japan, Korea, Singapore etc will surely inflate the $65bn import bill which the country currently has with China.
Also, it shouldn’t come as a surprise if the Chinese government also nudges its people to boycott Indian products, which currently account for roughly 5% of India’s total exports. Another important point that most of the people guess wrong is that India imports more of capital goods than consumer goods. This means that Chinese imports are crucial to Indian manufacturers for local production as well as exports. Even if the consumers are ready to shell out some extra money to satisfy their nationalistic gut, the producers surely won’t be willing to take such a cost hit.
The takeaway is clear – there is no option of taking any abrupt trade measure to counter the defense issues. This will not only be ineffective in achieving the desired outcome but will also invite bigger problems for Indians in the form of higher CAD, fear of loss of foreign investments due to policy uncertainty and greater expenditure for the common man. The only way to pursue self-reliance is to take long term measures to improve competitiveness of Indian manufacturers like easing labour laws, cutting down cost of compliance, reducing red tapism and providing a favourable environment to entrepreneurs. These measures will not only improve the trade situation but also assist in increasing the per capita income and welfare of the country.
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