India has the ability to reduce dependence on China, cut deficit: Report

Even though India relies on sizeable Chinese imports, there are 40 sectors where domestic substitutes do exist and switching part of the requirements to local alternatives can reduce the trade deficit with the northern neighbour by $ 8.5 billion in a single year, a report said on Monday.

The trade deficit contraction estimate has been made for FY22, assuming for a fourth of the items in the 40 specified sectors being sourced locally, Acuite Ratings and Research said.

Stand-offs at the borders in Ladakh, which resulted in a brutal killing of 20 Indian army men including a colonel, have led to widespread calls of not buying items from China and isolating the northern neighbour commercially. A few government entities like BSNL, Indian Railways and town planning authority MMRDA have already walked out of contracts or stalled tender processes which were certain to be won by Chinese entities.

In a dichotomy or sorts, Indian consumers have been making a beeline for Chinese mobile handsets at the height of the tensions with an expensive smartphone model getting sold in minutes.

"We believe that Indian industry has the wherewithal to successfully safeguard its interests and reduce India's dependency on China albeit in phases," the rating agency's chief executive Sankar Chakraborti said.
 

A strategic intent and highly calibrated approach from both the government and industry can not only reduce the trade deficit but also kickstart the long-awaited cycle of fresh private sector investments, he added.

In FY20, India imported goods and services valued at $ 65.1 billion to China and could only garner $ 16.6 billion in exports resulting in a trade deficit of $ 48.5 billion, it said.

Anti-dumping restrictions in certain sectors have led to a 15 per cent decline in the imports from China over the last two years, but the dependence of domestic economy on China is very high, its chief analytical officer Suman Chowdhury said.

After an analysis, the agency found that there are nearly 40 sub-sectors that have the potential to lower their import dependency on China. These include chemicals, automotive components, bicycles parts, agro-based items, handicrafts, drug formulations, cosmetics, consumer electronics and leather-based goods, it said.

Collectively, these specified sectors constitute $ 33.6 billion of imports, it said, adding that without any significant additional investments, the domestic manufacturing sector can substitute 25 per cent of the total imports from these specified sectors under consideration in the first.

Such a move alone can in the first phase can alone enable India to reduce the trade deficit with China by $ 8.4 billion in a single year, it said.

"This would have a positive cascading effect on the economy as equivalent quantum of revenues would not only be added to the turnover of domestic enterprises including MSMEs but is also likely to translate to benefits through forward and backward linkages, better economies of scale along with cost competitiveness and importantly, enhancing the scope of employment generation, the agency reasoned.

It said the chemical industries alone can help reduce the Chinese import as by $ 3 billion as it is only in a few segments like speciality chemicals that there is no domestic capabilities.