In a major development, it has been reported that India is looking to reduce imports of more than 350 “non-essential” items like toys, textiles, footwear and electronic goods. This is poised to give a major push to Modi government’s flagship Make in India initiative. The Modi government is also looking to put in place price control orders to reduce shipments into the country and encourage domestic manufacturing. With this, India might have just kicked off its own trade war with Beijing.
According to the Times of India, sources have said that several departments are looking into suggestions to waive off the requirement for global tenders in terms of those sectors where there is sufficient domestic demand. Several ministries including textiles, electronics and IT and commerce and industry have been asked to initiate action on an identified list of products.
The report has also stated that Public Sector Companies have also been asked to mention their product requirements and specifications for the next five to six years to assess domestic demand. Apart from this, the Modi government is also going to look towards vigorously pursue this plan. Quality control orders will be imposed on toys, such as dolls. Some of these duty hikes are expected to be announced in the budget, though the officials have not ruled out midterm corrections as of now.
Till now, the government has largely remained dependent on hike in import duties for a range of products, such as television sets and mobile phones. The government believes that such hike in import duties have helped push domestic manufacturing, and ministers have repeatedly pointed towards this policy as the reason behind domestic production and assembling of mobile handsets. Now, the government seems to be set to pursue this policy more aggressively.
This move has two major consequences- one, it is going to come as an impetus for the Make in India programme as the domestic manufacturers will benefit as imports in certain sectors will be discouraged. As per sources, in segments such as electronics, the list will be drawn up carefully, recognising that import of certain products needs to be discouraged. In fact, a large part of India’s trade deficit is attributable to the electronics segment, and the government is of the belief that signing the WTO first Information Technology Agreement, allowing duty-free imports in the said segment, was responsible for it. Therefore, the move to recognise select products and discourage their imports in a strategic manner will directly benefit the domestic manufacturers and give a much-needed thrust to the Make in India initiative.
Secondly, the move is going to hit China, which exports products across a range of sectors, in more ways than one. Indian markets are filled with Chinese products, especially in the electronics and toys segments. However, with India looking to reduce imports in both these sectors, among some others, Beijing will lose the readily available market that it has had at its disposal for the past several years.
Chinese products are cheap, and that is why the Indian manufacturers fail to compete with them. The consumers obviously prefer cheaper goods, giving the Chinese manufacturers an obvious advantage over their domestic counterparts. But the Chinese products, although cheap, do not boast of good quality and are often characterised as inferior-quality products. Now, with government seriously considering quality control orders, along with a number of other measures to reduce imports across a range of products in a variety of sectors, the Chinese products are going to be the most immediate casualty.
India faces a huge trade deficit with China, which reached 53 billion US Dollars last year in favour of the Dragon. This is the biggest trade deficit that India has with any country, and this shows the kind of advantage that Beijing enjoys over New Delhi in bilateral trade. But with import control measures in India, China will not able to take advantage of favourable trading equations with India.
China is already facing trouble on account of its ongoing trade war, and US President Trump’s clear signals that he is not going to relent when it comes to trade tensions between the two countries. Now, import restrictions in India might well prove to be the last straw for the export-dependent Chinese economy. Already reeling under the pressure of trade tensions with the US, Beijing is staring at yet another blow which might prove to be too hot to handle as far as its economy is concerned.
