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India relies heavily on Chinese OEMs (Original Equipment Manufacturers), leading to increased trade deficits and hindering the growth of domestic investments and manufacturing.
Illustration by The Geostrata
Tackling India’s reliance on China is a significant concern. The overdependence can be mitigated by trusting and promoting local players by tactically reducing import loads of several products from China and believing in exploring more options for trade with other nations.
The start of critical initiatives like manufacturing locally and diversifying away from China could enhance India’s geopolitical standing and align itself as a global supplier. Therefore, this article intends to explore and suggest measures to strategically reorient India’s economic relations related to China by analysing and identifying the problems across sectors of national importance.
RISK MANAGEMENT AND INTERMEDIATE PRODUCTION IN THE TELECOM SECTOR
India became the second largest hub for the telecommunication market worldwide as of May 2024, where privatisation and providing opportunities in the telecom sector became turning points. Indian telecom companies like Jio and Airtel, through their services, have made connectivity, digital communications and literacy affordable and accessible to the general public.
The role of the local administration in privatising the sector and encouraging the participation of domestic companies has revolutionised the Indian telecom market. However, the problem still lies in manufacturing and developing tech at an advanced scale.
Under such conditions, India loses its capability and heavily leans on Chinese companies to outsource them with low-cost raw materials like OFC (Optical Fibre Cable). Having world-class companies like STL, HFCL, and Birla Cables, which have started developing OFCs, India still outsources and hinders domestic capability. Trusting Indian OEMs and efficiently helping them to develop technologies in India could make India self-sufficient in the telecom industry.
FOSTERING RESEARCH AND DEVELOPMENT IN CONSUMER ELECTRONICS MANUFACTURING
Due to easy affordability, early rollouts of 5G have started a critical internet age for India, reaching a head count of 500 million active internet users. The growth in the number of users has made demands skyrocket in the electronics sector, increasing international investments in India and trusting local manufacturers, like Apple's vision of producing 25% of iPhones in India.
The investment opportunities reflect growing trust in Indian OEMs and being self-sufficient. However, the lack of infrastructure and a proper supply chain system remains a crucial barrier to encouraging research and development of technologies with higher quality and production.
India's major strength remains its cheaper and larger human resources than China. Therefore, by effectively utilising its vast human resources and simplifying legal norms, India can increase domestic productivity and reduce its reliance on products sourced from China.
SUPPLY CHAIN DIVERSIFICATION FOR INDIA’S CHEMICAL INDUSTRY
India’s chemical industry contributes 7% of India’s GDP, making it the largest chemical-producing country with worldwide demands. Over the years, production in countries like Europe and Japan has reduced, creating a void between supply and demand.
India, leading in the production of chemicals, has positioned itself critically to supply world demands. Increased domestic demands have been a problem for India, where India's dependency on crucial raw materials has increased, leading to heavy reliance on China's low-cost marketing techniques.
India can grab significant investments by hindering big norms for chemical producers, the setup of manufacturing plants would be much easier, and having a large workforce could make India a global player in the industry where achieving self-sufficiency and exporting to other nations is effortlessly possible.
DEVELOPMENT OF INTERMEDIATE FIRMS IN THE AUTOMOBILE SECTOR
India’s automobile industry has experienced growth in recent years. As per Invest India, India has produced more than 22.9 million vehicles from April 2021 to March 2022, making it the third-largest automobile industry market by 2030. Such conditions have made India an attractive option compared to China.
With the presence of leading international automobile manufacturers, the sector has contributed 7.1% to the country’s GDP in the Financial Year (FY) 2023. The key differences between India and China remain in trade practices related to the automobile industry.
Compared to China, India is an exporter of cars but remains dependent on imports for car parts. In this sphere, China is an importer of automobiles but is an exporter of parts, making the international producers dependent on its ever-growing capabilities.
In the current period, India’s imports of intermediates and parts from China stand at 91% in 2024 compared to 95% in 2015. Such figures have indicated that India’s dependency on intermediate products has increased compared to China.
Under such circumstances, India, to achieve self-reliance, needs to make domestic production of parts and allow indigenous research and development from its leading firms to lead the production of parts to reduce imports from China and ensure productivity and quality. The emphasis on intermediate products with low-cost advantages will enable India to develop associated industries in the steel, aluminium and rubber sectors.
SUPPORT MECHANISMS FOR ACTIVE PHARMACEUTICAL INGREDIENTS PRODUCTION
In recent years, India has emerged as the third-largest manufacturer of medicines compared to volumes, with 70% of its active pharmaceutical ingredient (API) chemicals imported from China. The essential components of APIs include medicines like paracetamols and painkillers.
According to a report by the Research and Information System (RIS) for Developing Countries, Indian pharmaceutical manufacturers and suppliers meet the twin demands from the domestic and the foreign market with their materials sources from China.
Therefore, India must allocate essential support mechanisms and funding assistance to firms making eligible products, including penicillin and vitamin B6, to be produced at lower market prices. Such conditions require funding and governmental aid to replace China’s influence in India’s pharmaceutical market through overproduction to reduce prices and investment in infrastructure and utilities for manufacturers.
In conclusion, India faces the problems of over-dependence on China across various sectors. Competition with Chinese manufacturers and producers can only change without investment in the manufacturing capacities and capabilities of the mentioned sectors in India.
Therefore, to increase the scale of production and become self-sufficient, companies need to be provided with the necessary financial incentives to make them competitive in terms of costs and scale by enhancing long-term indigenous and export market access.
BY ANIRBAN DUTTA AND HARDIK PANDEY
TEAM GEOSTRATA
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