Mounting tensions with China could accelerate India’s efforts to cut its dependence on imports from its northern neighbour and give a shot in the arm to local manufacturing, industry experts said.

Although China has emerged as India’s largest trading partner with imports accounting for close to 16% of the total, the experts said any disruption will have a relatively brief impact on domestic industry.

The disruptions caused to raw material supplies from China because of the coronavirus pandemic has prepared local companies to deal with such events, they said.

“The covid-19 situation has underlined the need to enhance deep localisation of components and most of the companies are working on that front,” said Vinnie Mehta, director general of Automotive Component Manufacturers Association of India (ACMA), which represents auto parts companies. “If the ongoing border standoff impacts trade relations, then it might hasten that process as companies will rush to reduce dependency on imports. In the short term though, there will be some hiccups since companies import critical parts directly or indirectly from China.”

On 12 May, Prime Minister Narendra Modi called for a building a self-reliant India, citing its experience in managing local demand without having to rely on imports in a major way during the lockdown.

Although the government hasn’t said so explicitly, experts ascribed a geopolitical angle to Modi’s assertion as India was already in the midst of a tense standoff with China.

India has tried unsuccessfully to bridge its trade deficit with China for years and is still critically reliant on the country for supply of electronics and drug raw materials.

While a large section of Indian industry has become increasingly dependent on China for raw materials and semi-finished products, industry experts said that in certain segments there is a reversal of this trend, with Indian manufacturers becoming more cost-effective than their Chinese rivals.

“For example, India used to import aluminium coils and sheets from China but now we are able to meet this through domestic production,” said Kishore Rajpurohit, vice-president, Material Recycling Association of India. “Instead, we’re now exporting 20,000 tonnes of alloy to China every month. We’re the cheaper source for alloy in the market, compared with the US and Europe. I do hope that these border tensions don’t escalate and impact bilateral trade.”

According to government data, electronics, capital goods, pharmaceuticals and metal components are the top imports from China. In certain sectors such as pharma, India is overwhelmingly dependent on China, with 75% of domestic supplies of raw materials sourced from there. The government has offered incentives to manufacture drug raw materials and electronics in India as part of a strategy to curb the country’s reliance on imports.


News Source: Livemint


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