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China and India conflict

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WORLD AFFAIRS Becoming more self-reliant

Sep 29, 2020

From the COVID-19 pandemic to the current border conflicts with China, India has led to taking steps towards becoming as localised as possible, resulting in the prospect of decline in trade relations. The editorial throws light on how India is considering localisation of the supplier operations more than ever now, in the background of these increasing border disputes with China.

Economic relations between two Asian giants — China and India — are certainly strong. China is India’s second largest trade partner, with bilateral trade at over $86 billion and Chinese imports at $70.3 billion. The Parliament was informed in September 2020 that India's imports from China declined by 27.63% during April-August 2020 this fiscal to $21.58 billion over the same period previous year. The border conflicts between India and China, which has begun since June this year, has given rise in India for boycotting Chinese products, resulting in weakening trade relations. The border dilemma with China has formed a tough purpose to shape more competitive domestic capacities. Besides this, the COVID-19 pandemic has also generated thoughts about India’s reliance on Chinese manufacturing. The hit of the pandemic has led to the Atmanirbhar Bharat Abhiyan, announced by PM Narendra Modi, a substantial step for the country to put emphasis on self-reliance.

Business owners also put across that Chinese shipments, particularly in the electronics and pharmaceutical industry, are subject to broad examination at Indian ports and airports rather than fast-track clearance. Shipment and delivery postponements are possible in the medium term for operations depending on Chinese imports. Numerous multinational companies have been looking at moving out of China, and India has established its capability to bring in excellence & scale in various sectors and holds the possibility to draw some investments.

It is vital that India foremost recognise the sectors it wants to put first and target segments with huge captive markets that provide gripping economies of scale. It should also determine sectors that possess strategic prominence. In fact, Piyush Goyal, Minister of Commerce and Industry, India, has said that the government has identified food processing, iron & steel, electronics, industrial machinery, auto parts as among the 12 industry sectors with potential for import substitution and boosting exports.

At the India-US business summit, speaking in terms of US investors, Modi said India shows growing trade prospects with a nation that can be trusted and which provides accessibility to a market that holds scale and obtainability of skillful human resources.

One of the sectors that have been significantly affected due to the tensions with China is India’s pharmaceutical industry. In July, in order to enhance domestic manufacturing and bring down reliance on import, the department of pharmaceuticals notified two key policies – Production Linked Incentive (PLI) scheme for promotion of domestic manufacturing of critical Key Starting Materials (KSMs)/Drug Intermediates (DIs) and Active Pharmaceutical Ingredients (APIs) and scheme for promotion of bulk drug parks.

Additionally, some car manufacturers are finding it difficult to carry out localisation, especially because of time constraints and the cost to put facilities in place. For companies to implement localisation, it’s important to be competitive. However, it also remains true that to stay competitive it is necessary to make use of new technologies.

Localisation is important as it brings in certainty and it is not something that can happen instantly. For that, India needs to mark business sectors that are triumphant and where there is room for localisation and scope for new export. It will also require developing a local supplier environment and create in-house competence.

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