Slashing Chinese Imports

WITH OVER 250 Indian toy makers reserving space already, the 14th business-to-business exhibition of Toy Association of India (TAI), scheduled at Pragati Maidan in New Delhi from July 8, will be the largest ever. A record number of foreign buyers, including about 100 from African countries (as against 12 in 2022) and West Asia, have also confirmed attendance.

The surge in number of made-in-India puzzles, board games, cycles, traditional toys and educational toys/games at the exhibition signals the revival of the Indian toy industry that had been almost wiped out by low-cost imports from China. Indian companies exported $422 million worth of toys in FY22 as against $291.8 million in FY21. Toy imports from China, meanwhile, have been declining. In value terms, they are half of what they were five years ago. Here are the figures. In FY23, India’s total toy imports were $380.1 million. China accounted for $218.9 million. In FY19, India had imported $645.6 million worth of toys. China’s share was $451.7 million.

Toys are a small part of imports (0.06% of goods imports worth $656 billion in FY23) but reduction in Chinese toy imports is a result of concerted efforts to reduce dependence on China, even though it continues to be India’s biggest source of imports with bilateral trade deficit peaking at $77 billion in FY23.

Are toys an exception? No. There has been a $5 billion dip in electronic imports from China. With consumption booming, the rate of growth of electronic imports raised fears they would overtake crude oil imports as the biggest source of forex depletion. In FY23, India spent $241.4 billion on crude imports and $61.1 billion on electronic imports. But Centre stepped in with PLI schemes to prevent this. Similarly, fertiliser and medical devices imports from China have dipped $500 million each.

In toys, the decline was followed by increase in domestic manufacturing and exports. “Toy imports have reduced by 70% and exports have increased by 61% in last few years. India’s toy manufacturing sector is booming on the back of various Central initiatives, reducing imports and ensuring an aatmanirbhar (self-reliant) industry,” Commerce Minister Piyush Goyal tweeted. Now, the question is, whether this applies to other goods where there has been a dip in Chinese imports.

Strengthening domestic manufacturing is important for India to reach its target of $1 trillion goods exports by 2030. This is possible only if India can increase domestic manufacturing and reduce dependence on China. Creation of a robust manufacturing base is also vital for gaining from China + 1 strategy of global corporations. Thus, decline in imports on a year-on-year basis is not enough. There is a need to take a closer look at reasons behind decline in Chinese imports to see if the trend will have a lasting impact on Indian manufacturing.

Visible Change

“We share your vision of the positive impact technology can make on India’s future — from education and development to manufacturing and environment, we’re committed to growing and investing across the country,” Tim Cook, chief executive officer of Apple Inc., said after his recent meeting with Prime Minister Narendra Modi.

Apple and other mobile phone makers like Samsung and Xiaomi have been leading India’s efforts to become more self-reliant in mobile phone manufacturing and reduce dependence on China. Counterpoint Technology Market Research says in its March update that contribution of exports in ‘Made In India’ smartphone shipments reached highest ever in 2022 both in volume (20%) and value (30%) terms. “Apple’s contribution to ‘Made In India’ smart phone shipments reached 25% in value terms in 2022,” it says.

India has, in fact, managed to resurrect its mobile phone industry after near-collapse in 2014. “First, we used Phased Manufacturing Programme to build a $36 billion mobile industry. We are now pushing exports via production linked incentive (PLI) scheme and production of $300 billion,” says Pankaj Mohindroo, chairman of India Cellular And Electronics Association (ICEA). ICEA says PLI scheme is showing results and mobile phones are now the single largest item (nearly 50%) in electronic exports from India.

Correspondingly, the share of electronic goods imported from China declined from 48.1% in FY22 to 41.9% in FY23, say commerce ministry officials. India imported $30.3 billion worth of electronic goods from China in FY22. The number came down to $25.3 billion in FY23. Incidentally, the two-digit HS Code under which electronic products are categorised includes solar panels where India has almost achieved self-sufficiency. “Solar panels were almost entirely imported from China till some years ago. This shows we can be self-reliant,” says Ashwani Mahajan, national co-convenor, Swadeshi Jagran Manch (SJM).

Green Shoots

The situation is similar in fertilisers though it is too early to say if the trend will continue. Fertiliser imports from China stood at $2.26 billion during FY23 compared to $2.95 billion in FY22, a reduction of $690 million. “There has been a fall in share of fertiliser imported from China. It was 13.9% in FY23 as against 21.9% in FY22,” says a commerce ministry official.

‘Make in India’ has contributed to this decline, at least in urea, says S. Nand, additional director general, Fertiliser Association of India (FAI). “There has been a substantial decrease in urea imports. The trend is sustainable because new plants have come up in India. Our production of urea rose 3.4 million tonnes in FY23 (over 26 million tonnes in FY22),” says Nand. Government estimates say India’s urea capacity will rise by six million tonnes during FY22–FY26.

However, the same cannot be said about DAP, the fertiliser where India is highly import-dependent, says Nand. “China, an important exporter, had not been in the market for two-three years due to internal reasons. This pushed up prices. Now, it has entered the market, and there has been a decline in international prices of DAP. This should reflect in import numbers in FY24,” he says. The commerce ministry says shift in import source from China to Russia has also contributed to this decline. “The share of Russia in fertiliser imports rose from 5.2% in FY22 to 17.2% in FY23,” says an official.

Early Days

Unlike toys and mobile phones, India has started meaningful efforts to reduce import dependence in pharmaceuticals (mainly raw materials or basic chemicals and bulk drugs) and medical devices only recently. So, while FY23 data suggests year-on-year decline, imports have been high over last five years. For instance, in medical devices, imports from China came down from $2.5 billion in FY22 to $2 billion in FY23, but remained higher than $1.6 billion in FY19. Similarly, the organic chemical segment saw imports from China dip from $12.5 billion in FY22 to $12.2 billion in FY23, but higher than $8.6 billion in FY19. In pharmaceuticals, imports from China were $160.5 million in FY23, much lower than $212.5 million in FY22, but way higher than $148.4 million in FY19.

Rajiv Nath, managing director, Hindustan Syringes & Medical Devices Ltd and forum coordinator, Association Of Indian Medical Device Industry, says news of decline in imports from China is encouraging, though further scrutiny is needed to find out the reasons as supplies from China were disrupted two-three times recently due to Covid-19 lockdowns there. But a clear silver lining is that as of March 2023, central government had sanctioned 51 bulk drug manufacturing projects, 55 projects for pharmaceutical product manufacturing and 26 medical device manufacturing plants under PLI scheme. The results will show in coming years. “Over 15 years ago, we used to meet 90% of our API (active pharmaceutical ingredient or bulk drug) requirement through domestic manufacturing. This got reversed after China started dumping APIs into India. We saw bulk drug units closing down and pharmaceutical companies becoming dependent on China. PLI schemes can reverse that,” says SJM’s Mahajan.

The Way Ahead

At $90.7 billion, China accounted for 13.8% of India’s goods imports worth $656 billion during FY23. In FY22, India had imported $94.6 billion worth of goods from China — 15.4% of its total $613 billion goods imports. One can see a slight decline in China dependence but the macro picture does not mean much. We need product-specific interventions looking at the micro picture, says Mahajan.

Toy makers vouch for this approach. Ajay Aggarwal, president, TAI, is clear about reasons for dip in toy imports from China. “It is because of two major initiatives of government. One is increase in import duty. It was increased from 20% to 60%. Now, it is 70%. Second is introduction of BIS standards for toys sold in India. About 1,100 Indian manufacturers have taken this licence to make toys in the Indian market,” he says.

ICEA’s Mohindroo says one should not look at imports in isolation as buying (components) is critical for domestic manufacturing and export of finished products. “The composition of imports is changing. It is more towards assemblies and components and less towards completely built units. China imports electronics worth $650 billion today. So, electronic imports will increase if India wants to become a large player in the segment. We are aiming at $300 billion output by 2026. If that happens, our electronics imports will rise to $120 billion,” he says.

Ashwani Mahajan wants government to be careful about which components should have low duty. “Tariffs alone cannot address the import problem as China diverts its imports through countries like Vietnam because of India’s free trade agreement with ASEAN. We need renegotiation of the FTA,” he says. SJM expects government to establish a trade intelligence service to track day-to-day developments. “Where is it (surge in import) coming from, why is it coming, is it because of inefficiency? We need to suggest quick remedial measures.”

The commerce ministry has already announced plans for better trade intelligence and analytics mechanisms. Departing from past practice, Foreign Trade Policy 2023 is not for a fixed five-year period but can be amended as and when required. While the new mechanism takes shape, listening to domestic industry’s concerns and quick decision-making to address their problems could lead to a more ear-to-the-ground approach. Let the trade deficit with China take its own course.