Ajit Ranade on how to deal with China: Dialogue, deterrence and trade

livemint.com:

In less than one year, India’s solar-cell manufacturing capacity will increase to 30 gigawatts from 6. These cells go into solar photovoltaic modules, whose capacity will also double to 150 gigawatts in two years. This will not only meet domestic demand but might also make India an exporter.

A similar story can be told in India’s quest for self-sufficiency in mobile phones. India’s capacity now fulfils 97% of the domestic demand for handsets, plus earned $15 billion in exports last year. Electronic exports will touch $50 billion in the next two years.

Notably, this production and export success is riding on imported Chinese components. For solar energy, India imports cells, glass, frames and encapsulants from China. To reach 500 gigawatts of renewable capacity, weaning away from Chinese imports won’t be easy.

And imposing punitive import tariffs just makes the sector expensive and uncompetitive in India. In electronics too, the growth of the domestic base depends on rising imports of printed circuit boards, micro assembly, semiconductor devices, LEDs, integrated circuits and capacitors. Overall imports from China have grown 31% last year, and the share of China in electronic devices and components has only gone up.

This story extends to other critical sectors. In the last 15 years, China’s share of India’s industrial product imports has increased to 30% from 21%. Chinese imports grew faster than overall imports.

It is largely intermediate goods that are imported from China, not end products or even raw materials (at the other end). These are organic chemicals, active pharmaceutical ingredients, capital goods and machinery. These inputs are critical for domestic markets and exports.