Domestic manufacturing may be boosted by China tensions

Domestic manufacturing may be boosted by China tensions

China has emerged to be the largest trading partner with India. Imports from China now account for 16% of the total, and any disruptions will have brief impacts on the domestic industry. 

Because of restraints in the movement of raw material supplies from China because of COVID 19, local manufacturers are now better prepared to deal with such events. 

The pandemic and the current situations have highlighted the importance of deep localization of components. A lot of companies are working on that front now. In the short term though, this will have a lot of problems, since a lot of companies will need to import critical parts from China, directly or indirectly.

PM Modi has laid special emphasis on building a self-reliant country. He cited the lockdown as a brilliant example of the country managing to meet local demand, without relying heavily on imports in a major way.  

And while the government was not very explicit about it, experts have ascribed that there was a geopolitical angle to this assertion too, since India was already in the middle of a standoff with China during this time. 

For years now, the country has tried to bridge its trade deficit with China. India still critically relies on china for the supply of electronics and drug raw materials. And while large sections of the industry are becoming increasingly dependent on China for their raw material as well as semi-finished products, there has been a reverse trend in quite a few segments. Indian manufacturers have found ways to become more cost-effective than their rivals. 

Take the case of aluminum coils and sheets for example. While earlier the country was heavily importing from china, the need for the same is now being met through domestic production. The country is now exporting 20,000 tonnes of alloy to China each month and is presently the cheapest source of alloy in the market when compared to even Europe and the US. 

India relies heavily on China for capital goods, pharmaceuticals, metal components, and electronics. 75% of domestic supplies for raw material in the pharma sector are imported from China. The government is now offering incentives to manufacture these raw materials and electronics in the country itself, which will curb down on the country’s reliance on imports.