A 5% overall share of Chinese imports in Indian goods doesn’t seem something to be worried about.

Needing to send out a message to China is understandable, since a military solution – like the surgical strike in Pakistan – doesn’t seem possible, but the manner in which this is being done is worrying. Not only is it hurting industry, matters will get worse since the policy response is fuelling hysteria and that, in turn, will shape future policy response.

This newspaper’s headlines on Wednesday were about how importers/manufacturers were panicking with the clearance of consignments originating in China getting delayed, and there is talk of 100% inspection of all such cargo. And while there seems to be no written instructions on this, this is not a stray event. A few days ago, the Government E-Marketplace (sales to PSUs and government departments are increasingly made on the GEM portal) asked sellers to declare the country of origin of their products. A new feature is a Made-in-India filter that allows buyers to choose products that meet a minimum 50% local-content criterion and only firms with a certain local content can be allowed to participate in certain bids; purchase preferences are to be given to those with higher local content.

Nor is this all. There are news reports on how the commerce ministry is in discussions with ecommerce platforms like Amazon and Walmart to ensure their suppliers also start listing their goods by country of origin.

How country of origin is to be determined is not clear either. In some cases, where the goods are clearly made in a certain country, this is easy. But what happens in the case of, say, a Samsung or an Apple phone that is ‘made in India’ but uses components that are made in China? Or components made in Korea or Japan that, in turn, use Chinese components. Are such products Indian or Chinese? And what happens if the imports are from Vietnam since many suspect that Chinese products are coming into India via third countries. And what is the cut off import-content for a good to be labelled as coming from a certain country? And will an army of inspectors now check if the labelling of millions of goods sold in lakhs of outlets is kosher?

Some perspective is useful here. In FY18, India’s manufacturing output was estimated at Rs 9,978,415 crore; value of output is not the same as manufacturing GDP as the latter only comprise the value addition in the sector, not the price at which the goods are sold. In that year, India’s imports from China were Rs 492,236 crore, or around 5%. This assumes that all Chinese imports were used as inputs into production; if part of them were consumed as final products, this share falls even further.

A 5% overall share of Chinese imports in Indian goods doesn’t seem something to be worried about. More so, since, it is not cheap Chinese imports that are making industry uncompetitive, it is the fact that Indian industry is uncompetitive that is fuelling imports. This, in turn, is due to faulty government policy over decades, but so much newsprint has been used to make that point, it is pointless wasting more. The question this column is asking is what the government is actually trying to achieve.

Are all goods that have a 5% Chinese component to be shunned? Possibly not, but what is the threshold to be? Indian pharmaceuticals are very largely dependent on Chinese imports; so is the government hoping that, given they will be classified as Chinese in origin, consumers will not buy these medicines? Is solar power to get a lower priority now since so much of the equipment is Chinese or will this get a reprieve since the main input – the sun’s rays – is Indian?! Also, in the case of the GEM portal, or any other government/PSU purchase, are the CAG rules being revised to say that goods can be bought at a higher price as long as they have a higher Indian component?; the higher threshold, presumably, will need to be specified since fixing this for each industry can also be a source of potential corruption!

As an aside, given how the bronze cladding used were cast in a Chinese foundry since India didn’t have large enough foundries, would it be possible to build the Statue of Unity today? A Times of India report (https://bit.ly/2VeVxgs) quotes a statement by L&T which built the statue as saying the Chinese imports comprised less than nine percent of the value of the project.

Apart from hurting Indian industry, the problem is that actions such as the ones of labelling are just serving to further whip up nationalist hysteria. Imagine what happens when, day after day, week after week, and month after month, people find that, say, 50% of the goods being sold online or in your neighbourhood toy shop, or electronics store, are made in China. This will, in turn, lead to more calls for boycotting Chinese goods, for raising import duties or putting some other kind of non-tariff barriers. But instead of helping Indian industry, such artificial support will just make it more uncompetitive since there will be less pressure on the government to fix the problem; why try to plug power theft when a 10% higher import duty on Chinese toys can take care of the disadvantage that Indian producers face due to electricity costs in India being higher? So it won’t be Chinese toys that will come in – assuming the government can stop all smuggling – and kill Indian industry, it will be toys from Bangladesh or Vietnam or some other country.

India was barely able to cope with a collapsing economy when the Corona pandemic magnified the problem manifold since there was not only a huge humanitarian problem caused by crores rendered jobless, there was also a big medical issue since most cities don’t have enough hospitals to take care of the ill and dying. The Chinese aggression in the Galwan valley has worsened matters, but let’s not multiply this with policies that are not well thought out and which will fuel mass hysteria. Prime minister Narendra Modi needs to instruct his ministers to step back; and if they really want to fight China, let them focus on improving competitiveness in the sectors under their charge.