Hindi-Chini No Buy-Buy

Tired of reading everywhere that India is not at a stage where it can boycott Chinese products? Here is a contrarian view! A lot of focus here has been on why we buy the Chinese products, how they have been able to sell their products at such low prices consistently over the years, and what India in its current capacity can do to surpass China as the Globe’s largest manufacturing hub, of course over a period of time. But the prerequisite here is – every citizen necessarily has to believe – “COUNTRYMEN WILL DO WELL ONLY IF THE COUNTRY DOES WELL ”

It should be noted, that India has already started devising and acting on a systematic plan to boycott China. 7 Crore traders and 40,000 trade associations throughout the country have come together to launch a national campaign, where a list of 3000 Chinese products (FMCG, textiles, paper, stationery, etc.) has been prepared. These goods have ready Indian manufactured substitutes available, which the Indian consumers should have no problem accepting.

Despite nurturing a negative sentiment towards China of late, why do we purchase their products?

Chinese products are not only a relief for our wallets, they provide us a value for our money. US/European counterparts might charge us 20-40% more for similar products. Is the reason for such low prices of Chinese goods a very low cost of labor? Probably. But if available data is to be believed, over the years, China has not been synonymous with cheap labor anymore. The labor is available in abundance, and is certainly cheaper than that of the developed countries, but it is not the cheapest. A comparison between India and China’s minimum daily labor wages has been shown in the graph below:

It is evident that China’s average laborer is quite high maintenance in comparison to an average Indian laborer. So, if it is not labor, what is China’s secret recipe for high value, high quality, cost-effective products?

The answer may lie hidden in various unexplored factors.

1. Exchange rate: Aside from including bats in their diet, the Chinese are well known for undervaluing their currency - primarily against the USD. China, for years, has been following a fixed exchange rate regime with some market-linked fluctuation allowed, that too within a fixed range which more or less fixes their currency rate. A weaker currency and a stronger dollar results in the ballooning up of their export earnings. Another effect of a stronger dollar is a fall in imports. This manipulation has a domino effect on the prices of the exported goods in the global markets, domestic goods prices and, labor wages in China.

2. Rip-offs: How Uber despite burning through 2 billion dollars in two years in China, failed to capture market share, and ultimately had to be merged with Chinese competitor – “Didi” is a case in point. There is a reason why Facebook, Twitter, Google, Uber, among others have failed to make any dent in the Chinese market. One peculiar characteristic that China is known for, is allowing foreign players in, learn the ropes, get a handle of the new technologies, and find better and cheaper ways to get the same work done domestically. It should be noted that in its trade war with China, the US had openly accused China of intellectual property theft. Very low R&D costs could be a significant factor behind cheaper Chinese products – since the business models and systems are a rip-off of global technology giants.

3. Supply Chain: No country at present has a more sophisticated supply chain than China. Supply chain activities transform the raw materials into the final product. China’s greatest advantage lies in the domestic availability of most of the raw materials required to manufacture a product. Having easy access to affordable raw materials helps bring down manufacturing costs, and as a result, having local suppliers of these raw materials has gained importance as a way of cutting costs.

#BoycottMadeinChina has been trending on Twitter recently. However, a hashtag on Twitter cannot make us resolute enough to boycott Chinese goods. The right path to self-reliance is to develop products and services of unbeatable value, such that they can compete globally.

The following ways could be explored:

1. Export rebates and tax concessions:

Indian manufacturers need added monetary incentives to manufacture products that can compete on a global scale. The key to reducing manufacturing costs is to reduce the input costs, and what better way to do so than to introduce additional tax rebates for companies involved in exports and companies that are manufacturing import substitutes?

Despite a large number of individual taxes getting subsumed into the GST, few taxes such as property tax, stamp duty, electricity duty, basic customs duty, duties on Petroleum & derivatives, among others are not covered in GST. With proper bills shown, partial or full rebates could be allowed on the above taxes. This might go a long way in making the industry cost-competitive.

Some of the benefits given to exporters could also be given to those Indian manufacturers who do not export their goods and services. A few of these could be – (a) duty-free import authorization on raw materials and components, unless they’re from China (b) low-cost loans (c) direct income tax benefits to industries that manufacture goods/services which are otherwise imported from China (smartphone, telecom equipment, home appliances, etc.).

2. Superior infrastructure and logistical access:

Consider the example of transportation of limestone from Uttar Pradesh to an Ultra-tech’s concrete plant in Maharashtra. How would bumpy, poor & congested roads affect the travel time and cost due to increased time taken? How would the production of concrete be affected due to a delay in the delivery of limestone because of poor roads? The answers to these questions are self-explanatory.

A speedier implementation of the proposed Delhi-Mumbai Industrial Corridor (DMIC) is a step in the right direction. This 1500 odd Kilometer stretch is proposed to improve the road and rail connectivity between Dadri in North to JNPT in West. Alongside, multi-modal logistic parks and manufacturing hubs are proposed that would facilitate speedier transportation between domestic locations and will also facilitate speedier exports.

Apart from this, huge parcels of land for warehousing and setting of industrial units on the left and right of the corridor would be made available at competitive rates to the Indian as well as foreign manufacturing players, hence fueling the Make-in-India movement.

3. Retaining intellectual wealth:

The crux of manufacturing cost-efficient products is intense R&D, and at the heart of this R&D, lies the intellectual capital of India – engineers and scientists. The Indian government needs to figure out ways to stop the brain drain.

Here’s what could be done to bring back our overseas working citizens, or to prevent Google, Microsoft, Uber, etc. from poaching those new hotshot IITian graduates with tempting packages:

(a)Creating specific job positions in the government itself for senior scientists, data experts, doctors, etc. working abroad (b) providing income tax benefits for a specific tenure – say 10 years (c) Promote people on merit alone – that is, do away with reservation system based on caste, creed, minority status, etc. (d) Start investing heavily in research laboratories and libraries to attract the cream out there in the world.

4. Full utilization of natural resources:

Take an example of Coal - Despite having the 5th largest coal reserves in the world, India imports from Indonesia/Australia- Why? Because we do not have the technology, resources, etc to mine them fully. Similarly, India should realize its full capacity for other natural resources and attempt to significantly increase overall domestic industrial activity. The resultant profits could be re-invested to create more capacities, jobs etc.

We as citizens cannot depend solely on the Government to achieve this mission of self-reliance. We have to play an equally important part – pay our taxes honestly, attempt to formalize the black economy into a white one to the extent possible. This might help the Government in scaling up the infrastructure spend, so that the environment for manufacturing quality products at affordable prices is created.

All the reforms and changes are not going to take place overnight. We countrymen for the intervening period will have to show preparedness to pay slightly higher for the goods as compared to goods imported from China. We might even have to put up with inferior products during this period, since developing technology/ in house R&D will take some time.

The political aggression in Taiwan and Hong Kong, the military standoff in Eastern Ladakh, inciting Nepal against India & the US, creating a position of dependence in weaker economies for political manipulation – these tactics hint towards the Chinese playbook for global domination. This should serve as a wake-up call not only for India, but for the entire globe, to reduce its trade dependence on China, so as to prevent the dragon from achieving its decades-old dream of Chinese supremacy.

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