Made in China Swamps Modi's Plans as Backlash Escalates
(Bloomberg) -- In Mohit Gogia’s stationery and gift store in Noida, near India’s capital, the only decorative lights for sale ahead of last month’s festival of lights were Chinese made.
"India-made lights cost twice as much," said Gogia, as shoppers snapped up supplies for the Diwali celebration. "Customers aren’t willing to pay that."
Two-way trade statistics tell the tale. India’s deficit with China has ballooned nine-fold over a decade to $49 billion in 2016 as China’s manufacturing edge stacks the odds against Prime Minister Narendra Modi’s three-year-old ‘Make-in-India’ program. The result: India’s current account deficit is worsening again, threatening the outlook for an economy already straining under the fallout of a snap ban on high-value notes a year ago and a new sales tax.
Now -- a century after freedom fighters in colonial India launched a movement against British goods -- the backlash against Chinese products is ramping up. Swadeshi Jagran Manch, an economic policy group linked to the ruling Bharatiya Janata Party, drew more than 100,000 onto the streets in the capital New Delhi on Oct. 29 in a rally against the dominance of Chinese products. A picture in the local press showed protesters holding Indian flags and a poster of Chinese President Xi Jinping with a cross mark on it.
"This is the biggest-ever gathering to fight the dominance of Chinese goods," Arun Ojha, national convener of Swadeshi Jagran Manch, said in an interview in the hot, dusty protest site days ahead of the rally. "Our youth are losing jobs and we are becoming traders of Chinese products."
Swadeshi Jagran Manch says its boycott movement is a "second war of economic independence" and claims support from farmers, trade and labor associations -- the same groupings that Modi will rely on for re-election in 2019. Protest leaders met with Defense Minister Nirmala Sitharaman following the demonstration. Calls to her mobile and to the office of the prime minister seeking comment went unanswered.
"This flood of Chinese imports fits in very uncomfortably with the priority of the Modi government to expand India’s manufacturing base," said Harsh Pant, professor of international relations at King’s College in London. "This trade deficit is now becoming a major headache. Though this is not unique to India-China economic ties, this is a major concern for Indian policy makers now that economic restructuring is a priority for New Delhi."
In the last 10 years, there’s been a few episodes of rapid growth in India that led to rising external deficits and inflation and came to a halt because the government had to rein in demand in order to restore macroeconomic stability, said Louis Kuijs, head of Asia economics at Oxford Economics in Hong Kong.
"The imbalanced trade relationship reflects the fact that India’s manufacturing sector remains strongly underdeveloped," Kuijs said. "Unless it is able to develop its manufacturing sector so that it can produce a large share of the growing demand for goods in its economy, India’s economic growth will be constrained by rising current account deficits and/or inflation and their consequences."
India and China’s frosty relationship has already been put to the test by a weeks-long military standoff in the Himalayas earlier in the year. Indeed, demands to boycott Chinese goods gathered momentum after that friction on the Doklam plateau refreshed memories of a border war between the two nations in 1962, where China emerged the victor.
Economically, India is losing out this time too: Taiwanese electronics giant Foxconn Technology Group has reportedly delayed a plan to set up a 3 billion rupees plant in the western Indian state of Maharashtra because of the standoff. Foxconn did not directly address whether its Maharashtra plant had been delayed. In a statement it said: "We are committed to the development of India’s technology and manufacturing sectors. Details regarding any new investments will only be announced once decisions have been made and all necessary approvals have been received."
China has a different perspective on the trade relationship. The two nations could benefit from collaborating more, not less, said Wang Huiyao, director of the Beijing-based think tank Center for China and Globalization and an adviser to China’s cabinet.
A boycott "doesn’t make any economic sense -- it’s an irrational move," he said. "China’s products and China’s experience can really benefit India."
Describing India and China as "important neighbors", China’s Ministry of Commerce said in a statement that this year had seen leaders reach "a series of important consensuses on further developing" trade relations. "The two countries’ economies are strongly complementary and both sides are developing trade cooperation," it said.
To be sure, Modi’s Made in India push hasn’t been without success. Foreign direct investment rose to a record $60 billion last financial year. But the program didn’t translate into lower imports from China, nor did it give any major push to manufacturing.
"An inefficient indirect tax system, even after the goods and services tax, makes several inputs and final goods cheaper to import than buy domestically," said Amitendu Palit, senior research fellow at the National University of Singapore’s Institute of South Asian Studies.
Ironically, the USB flash drives with electronic versions of brochures distributed at the Make-in India program announcement in 2014 were made in China.
"No one is capable of competing with the Chinese," said Neelam Deo, a director of Mumbai-based think tank Gateway House and a former diplomat.
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