From clashes with China in Galwan, India has gradually implemented a series of political initiatives for over a month to harm Chinese economic interests and curb its influence in the country; although these steps have been in line with his Atmanirbhar Bharat initiative, which aims to promote national industries, self-sufficiency and import substitution of products that can be manufactured locally within the country; they are also creating a myriad of problems for companies operating in this great South Asian nation.
India has forbidden 59 apps with Chinese links, such as TikTok, Helo WeChat, Share IT, UC browser and shopping app factory, citing threats to privacy and security posed by these apps to the country’s “sovereignty and security” from China. Along with a strong initiative to discourage Chinese purchases by strengthening imports through both rates is non-tariff barriers as well as ensuring manual controls and long times ballot of shipments from China.
The DPIIT (Department for the promotion of industry and internal trade) has asked industrial and commercial associations to prepare a detailed list of Chinese products that can be replaced with local products, while instructing e-commerce companies to show the country of origin on the new products listed by sellers on their sites by August 1st.
Although the ban on Chinese apps was easy to implement thanks to the convenience of choosing the uninstall option on phones, it led to a sudden short term click in the downloads of products from national startups like ShareChat, Roposo and Chingari. To comply with the DPIIT mandate, the e-commerce markets that Myntra, Flipkart and Snapdeal have requested for a period of up to four months, while they struggle to provide a non-partisan neutral treatment for all products that sell on their platforms.
Starting July 21Amazon India has decided to bite the bullet and create labels for the country of origin obligatory for its sellers, many of whom are craftsmen, nascent brands, small producers and even startups, and the platform also warned them that they could face suspensions or other actions in case of non-compliance.
Indian unicorns Paytm, Ola, Zomato and MakeMyTrip also have was not spared, with Indian consumers expressing negative comments, uninstalling these apps and also providing the lowest possible ratings for them on the Google Play Store. Although these companies had been founded by Indian entrepreneurs, they were at the end of negativity because they received it significant financing capital from Chinese Internet companies: Tencent, Alibaba and Ctrip.
Consequently, major venture capital investors I asked their portfolios to diversify their capitalization tables. Investors from China are in the capitalization charts of 18 of 30 startup unicorns from India, and it is becoming a moral hazard for a company to accept any capital from China in the current Covid-19 environment, when banks have huge impaired assets and there is a scarcity of capital to lend to businesses.
The problem is further aggravating in the electronics market, where Indian consumers find it difficult to differentiate between “Made in India” and smartphones made in China. Such as more than 70% of the components used in the assembly of these products are imported from China, the manufacturers have been recourse for assembly of cell phones, which are sometimes marked as “Made in India”, compared to the more capital-intensive move to set the entire component value chain within the country.
After the opening of the Covid-19 block in India, existing electronic manufacturing plants continue to suffer unavailability of migrant work, closure of plants due to coronavirus infections e inability to increase production due to the removal rules within existing factories. Therefore, companies must depend on the increase in the number of import unit of durable consumer goods as a dishwasher to satisfy pent up request of the last few months.
In the smartphone market, with a heavy customs duty of 22%phone prices are increased, it is becoming difficult for local cell phone manufacturers Lava, Micromax and Karbonn to make a dent in a market where the share of these local brands was 1% in the first quarter of 2020; and consumers keep collecting Chinese-made products that offer greater value for money in terms of specifications, especially when there is a compression of discretionary spending.
Due to manual control of their Chinese imports, some electronic companies are fearing destruction of blocked components such as displays, which must be packed in certain temperature conditions with particular attention. Due to delays in obtaining authorization for these imports, call us manufacturers are seeing their production hampered, plants closed and a shortage of new smartphones and stocks of vital components, which has been negatively impact on sales in June and July.
Given that these anti-Chinese economic policies have proven to be more harmful by not addressing the central problems that include the lack of technology, production capacity and capital to manufacture electronic components, which are fundamental to becoming self-sufficient in the production of finished products.
For a lasting change towards self-sufficiency and to reduce its dependence on China, the Indian government must provide constructive momentum to produce high-value electronic imports. It must address the high cost of production by providing cheaper sources of capital, accompanied by improvements in port infrastructure and logistics.
Returning to regulatory trade barriers or consumer boycotts which are rudimentary tools of the import substitution policy, which was discontinued after 1991, would have simply recreated many of the same problems which had previously beset Indian industries.