According to an analysis conducted by industry body PHD Chamber of Commerce and Industry, India holds the immense potential to reduce 40% imports (around USD35 billion) from China in the coming times as there are various product categories in which India also produces but at the lower volume.
The PHDCCI report on ‘Prospects and Potential for Enhancing Exports and Reducing Imports of India’, (attached) pertains to the comparative analysis of bilateral trade with the largest importer and exporters of India i.e. China and USA.
The recent dynamic schemes announced by the Government of India such as the PLI scheme and PM Gati Shakti schemes have enhanced the sentiments of the Indian producers to produce more at a competitive cost which will give considerable competition to China.
In recent years imports from China have increased significantly except the Pandemic year, India has imported around USD 87 billion in the year 2021 wherein the top 10 import product categories comprise around USD 54 billion.
Imports from China have changed from low-value, low-cost products like toys and crackers to high-value items like electronics.
Unfair competition from imports from China had a severe impact on the growth prospects of domestic manufacturers, especially small businesses.
India has significant scope for producing more import substitution in the sectors including chemicals, automotive components, bicycle parts, agro-based items, handicrafts, drug formulations, cosmetics, consumer electronics, and leather-based goods among others.
Enhanced production in these sectors will not only reduce imports from China but also boost India’s exports in such product categories.
There are approximately 36 sub-sectors that can reduce India’s dependence on Chinese imports. These sectors collectively account for around USD35 billion in India’s imports.
Since the domestic market has production capabilities; these sectors can readily minimize their dependence on China in a phased manner without any substantial extra investments.
In the first phase, India may focus on the sectors that are included in the PLI scheme. The sectors such as electrical and electronic components comprise USD26 billion in India’s imports from China, Whereas, Active Pharmaceutical Ingredients, Machinery and components, plastics, and fertilizers are collectively contributing around USD 30 billion and can be the major exports.
In the second phase, labour-intensive sectors such as textiles, iron and steel, tanning, dyeing extracts, man-made filaments, furniture, and lighting among others can also be considered for import substitution and export promotion.
Export promotion strategy for 36 sub-sectors would have a positive cascading effect on the economy through forward and backward linkages in the industry production processes.