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Can India lure investors from China and survive

on fewer imports?

By Kunal Purohit

Published: 5:30pm, 29 April, 2020


  • New Delhi is looking to attract electronics manufacturers and wants to boost domestic production of pharmaceuticals

  • A yawning trade deficit is fanning bilateral tensions, with a minister in the Modi administration saying global ‘hatred’ of China is the ‘biggest opportunity for India’


Electrical machinery and equipment amount to 30 per cent of India’s imports from China. Photo: AFP

Just before the Covid-19 pandemic, engineers at Fabrinox Potnis were faced with a dilemma. The Mumbai-based commercial-kitchen-equipment manufacturer was working on a contactless handwashing station, and there were only two suppliers producing a valve that allowed the mechanism to work effectively – one in India, and one in China.

“The cost of the Chinese import was 8 per cent to 10 per cent cheaper and the quality was vastly better,” said director Saurebh Potnis, who decided to go ahead with the company from China. His handwashing station was a hit, but Potnis now needs more supplies – and these are increasingly hard to come by as the coronavirus hits global trade.

Even as India grapples with a steady rise in Covid-19 infections – with more than 31,000 cases so far, and over 1,000 deaths

 – there is an undercurrent of change in New Delhi. The country is increasingly eyeing the space China might have to cede in global trade, following the realisation that global commodity chains are excessively reliant on Chinese imports.

With Prime Minister Narendra Modi having last week said the biggest lesson all nations could take from Covid-19 was that they had to become self-reliant, the Indian government is going all out in a bid to revive its own economy while scoring a political victory over Beijing.

To accomplish this, Delhi is considering a two-pronged approach. Like some of the world’s largest economies, it wants to lure foreign investors that might seek to exit China, but at the same time it is looking to push domestic manufacturing in a bid to actively reduce the Chinese imports on which some of its industries depend.


India’s Prime Minister Narendra Modi says nations must become self-reliant following the Covid-19 pandemic. Photo: AFP

Sources told This Week in Asia that the Indian government was focusing on the electronics and pharmaceutical sectors, where it feels it can create alternate supply chains by boosting domestic production capacity. To this end, India has announced schemes incentivising the manufacture of electronic products – long considered a strength of Chinese firms – and appointed special bureaucrats to fast-track approvals of companies leaving China.

Electrical machinery and equipment amounted to 30 per cent of India’s imports from China, while some two thirds of the drugs needed for India’s pharmaceutical industry are imported from China.

To Potnis, however, all this is easier said than done. “I would also much rather source my imports domestically, but there are no suppliers whose quality is as good,” he said. “I can’t compromise on the quality of my product, can I?”

China is India’s second largest trading partner, according to Indian government data, with US$72.4 billion in bilateral trade in 2019-20 – second only to India’s US$75.2 billion trade relationship with the United States.

However, China is by far India’s largest source of imports, and Delhi is looking to narrow its yawning trade deficit of US$43.5 million with Beijing – trade tensions that have frequently been on show in ties between the two nations.

Earlier in April, India tightened rules governing foreign direct investment by introducing a clause that – without naming China – was widely seen as a move to stave off takeover by Chinese firms during the pandemic.


China is India’s second largest trading partner. Photo: EPA

Beijing swiftly decried the move, and called it discriminatory. A row between the countries over Chinese-made Covid-19 test kits has since broken out, with India saying it will not use the Chinese products due to concerns over their accuracy and Beijing’s embassy in Delhi hitting out at “certain individuals” for doubting the quality of the kits, claiming prejudice was at play.

Nitin Gadkari – India’s minister of micro, small and medium enterprises – upped the ante on Sunday. Speaking in a webinar, he said India had to take advantage of the world’s “hatred” of China by luring manufacturers out of the country.

“There is hatred across the world for China right now … but I believe this is a blessing in disguise,” he said. “This is the biggest opportunity for India.”

Conversations with government officials as well as industry leaders reveal that India is trying to match its rhetoric with action, with the involvement of major domestic players and trade associations as well as foreign players already manufacturing in India.

“We have sounded out these stakeholders about the likelihood of foreign manufacturers wanting to move out of China and into India,” said a source in India’s commerce and industry ministry who declined to be named. “From domestic players forming joint ventures with them to trade associations guiding them and alerting us in, these stakeholders have been told to stay alert.”

Minister Gadkari made a similar appeal on Sunday, when he said he would ask Indian trade associations to help the government get data about American and British firms invested in China, as well as to communicate with those firms directly and “ask them to invest in India, instead”.

“I will appoint a bureaucrat specially for this, who under my supervision will directly deal with such companies and give them approvals,” he said.

Assocham, an Indian trade body representing 450,000 micro, small and medium-sized enterprises across the country, said it would back the government’s efforts.

“Different industry segments that are members of Assocham have worked out aspects where they can support new entrants from the global scenario, either as vendors or suppliers or as joint venture partners,” said Dr Niranjan Hiranandani, the association’s president.

Professor N.K. Goyal, in his positions as the chairman of the Telecom Equipment Manufacturers Association of India and the Communication Manufacturers and Infrastructure Association, coordinates more than 48,000 manufacturers of mobile phones and wireless devices across the country.

He said close to 90 per cent of components required for mobile phone manufacturing in India were imported from China, but he added that the domestic industry had been fielding inquiries from China-based manufacturers for more than a year – ever since the US-China trade war heated up.

“Now, with the pandemic, there is a growing sense that supply chains cannot be so globalised,” Goyal said. “It is everyone’s interest to have alternate supply chains and that is what we, in India, must plan for too. However, it is a long process and won’t happen overnight.”

The Modi administration, realising this, in late March announced a US$615.5 billion scheme spread over the next five years to boost domestic manufacturing of electronic equipment.

On Tuesday, India’s information technology minister Ravi Shankar Prasad, talking to IT ministers from different state governments, said they should be proactive in seizing investment opportunities presented by “anger against China”.

Similarly, in the pharmaceutical sector, the government has sought to demarcate short-term priorities such as pushing domestic manufacturers to source locally as much as possible during the pandemic, along with short and long-term priorities including incentivising domestic manufacturing and luring major technology providers to India. But those in the industry believe this will not be easy.

“Close to 70 per cent of our active pharmaceutical ingredients are imported from China. These have to be imported because either they are the most economical option or there are no other suppliers, in some cases,” said Ashok Madan, executive director of the Indian Drug Manufacturers’ Association.

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