At a time when a sentiment in favour of boycotting Chinese goods is gathering steam, companies across import-dependent sectors such as automobile, pharmaceuticals, electronics, telecommunications, etc have said that any move in this direction could be counter-productive and impact the overall competitiveness of the Indian manufacturing sector.
They attribute two main reasons for this: One, automobile and pharmaceuticals companies have invested deeply in building a supply chain that traces back to China significantly and disrupting that supply chain could adversely affect their competitive situation in the export segments. Two, for companies in the telecommunications and electronics segments, the disruption could come from the lack of domestic manufacturing capabilities and significantly higher input costs.
China accounts for around 14 per cent of India’s total imports, and major items in the import basket being components for smartphones and automobile, telecom equipment, plastic and metallic goods, active pharmaceutical ingredients (APIs), and other chemicals.
In telecom, the Department of Telecommunications (DoT) has already asked state-owned operators BSNL and MTNL to keep Chinese vendors out of the scope for their tenders. Advice to private companies to not use China-made equipment in their networks is also being considered now.
“Clearly, this is not something that we would prefer to happen but we have to see what is in the national interest. Huawei makes $122 billion globally, and they make just over $1 billion from India. It’s not that if you go after telecom, you’ll make a big dent,” said Rajan Mathews, Director General, Cellular Operators Association of India (COAI), a body representing the top three private mobile companies.
“What our operators do when they want to purchase any piece of equipment for their network, is create a list of all items that are necessary. No company runs 100 per cent on just one vendor, it is an aggregation of multiple vendors. They look at aspects such as a vendor’s maintenance facility, support facility, best quality and best price, following which they make a choice. But if you take away some companies from this equation, the choice will be reduced. Obviously, lesser the number of suppliers, the remaining get to have more negotiating power over the purchaser,” Mathews said.
Further, despite having a laid down plan for the electronics manufacturing segment since 2015, much of India’s electronic goods are only assembled locally with high dependence on import of parts from China. Gurugram-based Micromax, which was once the top mobile phone maker in India, lost out to Chinese smartphone companies which came with budget offerings, and now has lined up several new launches. Other Indian companies like Intex and Lava, too, met the same fate, though the latter still has a grip in smaller towns.
“But for Lava too, the original device manufacturer is a Chinese vendor sitting in China with even the design being done there. They might have local semi-knocked down manufacturing facility in India to assemble the phone, but in the end it’s all Chinese,” the source said.
He underlined that it would not be easy for Indian brands to cash in as they wouldn’t be able to achieve the cost benefit Chinese manufacturers have.
According to the Internet and Mobile Association of India (IAMAI), India suffers from several cost disadvantages compared to other countries like China, Vietnam, South Korea and Taiwan. Such disadvantages emanate from challenges like logistics, high cost of debt, lack of utilities like high quality power and water. Countries like China and Vietnam provide incentives to the industry to make domestic manufacturing competitive, according to IAMAI.
Similarly, for the automobile sector, the relations developed with component suppliers in China over decades have provided a shot in the arm to Indian vehicle makers.
An executive at a Pune-based automotive company said there was a need for a coherent strategy on countries and suppliers. “That our company has spent years building a supplier base in China and that they are contributors to our competitiveness, especially external markets such as Africa and South America is key to our business. Even if we import a certain quantity from China, our exports are 15 times that,” the executive said.
While it is unclear whether India will implement a ban on imports of ingredients used to make crucial medicines, some industry executives fear rising tensions with China may indirectly create shortages.
“The major problem we are going to face is in imports of intermediates, which we need in huge quantities to convert to active pharmaceutical ingredients (APIs). Many APIs also come from China. There are many examples of medicines like paracetamol, cephalosporin and penicillin, for which we do not currently produce intermediates,” said RC Juneja, Chairman of Delhi-headquartered Mankind Pharma.
“If you buy from other countries, the prices of the ingredients will be costlier, but the National Pharmaceutical Pricing Authority (NPPA) may not allow us to increase prices to offset this pressure,” Juneja said. Another fear is that, even if India doesn’t impose a ban, China may increase prices of the intermediates and APIs in retaliation. “Prices of these ingredients already increased around 10 per cent during the initial stages of the outbreak and lockdown in China. Can we say they will not do this again now?” he said.
According to official data, India’s pharmaceuticals industry is the third largest in the world in terms of volumes. The country exported around $14.35 billion worth formulations and $3.91 billion worth bulk drugs and intermediates in 2018-19. However, the country also depends heavily on China for various crucial ingredients used to make formulations. Around 68 per cent of the $3.56 billion bulk drugs or APIs imported were from China in 2018-19.