Until 2011, India was one of the largest exporters of first-class solar modules. Domestic manufacturers-including Tata Power Solar Systems Ltd, Moser Baer, ​​Bharat Heavy Electricals Ltd, Indosolar Limited and Lanco Infratech Ltd-are industry pioneers. 

Today, the Indian solar industry relies heavily on the import of important components such as solar cells, modules and solar inverters. In 2019-20, the country imported US$2.55 billion worth of solar wafers, cells, modules and inverters. The situation in the solar cell, module, and inverter industries also applies to many other industries, including toys, steel, telecommunications and electronics, textiles, and pharmaceuticals. The common culprit is imports from China. 

Also read: Traders boycott Chinese goods; reduce imports by 1 trillion rupees by December 2021

In the past decade, India has continued to experience higher trade deficits, a large part of which is due to the trade deficit with China. 

Policymakers have tried to limit China's imports by raising import tariffs, but with little success. For example, recently, tariffs on toys, tricycles, scooters, scale models, and dolls have increased sharply from 20% to 60%. The impact of China’s exports to India has destroyed the micro-small and medium-sized enterprise (MSME) industry, which is India’s main employment opportunity. Moreover, the pandemic will only make the situation worse, with approximately 10 million people losing their jobs mainly in the small, medium and micro enterprise sector. 

The Indian textile industry is also facing the challenge of importing polyester, viscose, and blended man-made fibers mainly from China, which led to the shutdown of 35% of power looms in Surat and Biwandi. 

Someone pointed out that the existing commodity and service tax structure tax (inverted tariff structure) of 18% for synthetic fibers, 12% for yarns and 5% for fibers has brought unexpected benefits to China. The rapid development of Chinese fireworks in the Indian market has also had an adverse impact on the Indian fireworks industry, which is mainly small, medium and micro enterprises. 

It also poses a hazard to public health because most Chinese biscuits contain potassium chlorate, a highly explosive chemical that is banned in India. 

Then, due to lax law enforcement, low-priced Chinese bicycles entered the country. 

Similarly, the domestic toy industry has actually been destroyed by Chinese imports. By 2021, it is estimated that 75% of India's domestic demand will be met by imports, mainly from China. Similarly, due to the continued suspension of countervailing duties on stainless steel imports from China, imports have increased substantially in the past few years. 

For example, in the first half of 2021-22, compared with the average monthly import volume of the previous fiscal year, India's stainless steel sheet imports increased by 185%. 

Also read: Due to strong global demand and surge in imports, China's exports may remain strong in October

Such imports have had a particularly negative impact on stainless steel manufacturers in the MSME field, which mainly supply household products (appliances, etc.). Most of the imports come from China and Indonesia. Compared with the average monthly imports of the previous fiscal year, the first half of this fiscal year increased by 300% and 339%, respectively. 

Today, China and Indonesia accounted for 79% of total stainless steel sheet imports in the first half of FY22, while their share in FY21 for the whole year was 44%. Even after the government launched the 2015 Digital India Plan, imports of telecommunications and electronic products have doubled in the past few years. 

In 2019-20, more than 83% of imported mobile phones came from China. In the same year, nearly 90% of color TVs were imported from China to China. 

India also continues to rely heavily on China's imports of telecommunications transmission equipment. In terms of medicines, India is completely dependent on China's imports of raw materials for paracetamol and streptomycin, and is very dependent on other antibiotics such as ciprofloxacin and amoxicillin. As we all know, China dumps its products in export markets. Dumping is the difference between domestic prices and export prices, causing damage to producers in other countries. 

Due to various reasons such as economies of scale of production, increased productivity, overcapacity, and government subsidies, China is able to sell at a cheaper price. 

Since China joined the WTO in 2001, many multinational companies have established joint ventures with Chinese companies to transfer technology and improve the productivity of Chinese companies. China can also purchase material inputs (used to make final products) from Africa and the Greater Mekong subregion at a cheaper price. 

A large number of companies that dominate exports are government-controlled companies.  

The financing of Chinese companies funded by the government is not a problem. This is a problem that plagues Indian small, medium and micro enterprises. 

The Chinese government grants exporters a 17% export tax rebate. In fact, this makes imported Chinese goods much cheaper than Indian goods. In addition, China’s regions and provinces have expanded their tax structure with incentives and tax rebates, competed with each other to attract industries in the region, and vigorously promoted exports by expanding incentives (even in terms of software downloads and logistics compensation for long-distance freight). This makes Chinese products cost-effective. In addition, the People's Bank of China complements all this by underestimating the value of the Chinese yuan in the international market. 

Moreover, these subsidies and other problems have caused an imbalance between India and the international market, reduced the competitiveness of Indian products in the domestic industry, and caused material damage and continued financial pressure on local companies. India is failing because of domestic policy fallacies. As a result of these practices, Chinese products are subject to anti-dumping and countervailing duties that are not in compliance with WTO regulations on a global scale. (The author is a professor at Mahindra University School of Management.)   

Copyright ©2021 Living Media India Limited. Reprinting rights: Union Today