Market access restrictions in China and lack of manufacturing capability in technology items such as semiconductors could deprive India from taking advantage of the trade war between the US and China, which officially kicked in from Friday. However, the industry is hoping that imports of several commodities may become cheaper as a result.
The US on Friday imposed up to 25 per cent import tariff on 818 Chinese products. The move is set to affect around $34 billion worth of US imports, mainly intermediate capital products, including industrial magnates, semiconductors and printed circuit boards that are used by American companies to assemble engineering goods. These are used for making electronic equipment and LED panels, among others.
Beijing retaliated, by slapping tariffs on 545 US products, including soyabean, pistachio, rice, salmon and cigars, worth up to total $34 billion in imports. China accounts for $12 billion of America’s total soybean exports of $21 billion.
According to data from the commerce ministry, India’s trade gap for electronics products doubled in the last five years to $38.94 billion in 2017-18 from $18.86 billion in 2013-14. India’s ambitious scheme to promote electronics manufacturing failed to bring in the desired results since many companies opted out of their planned investments due to the slow pace of approvals for disbursement of incentives. For instance, investments committed under the Modified Special Incentive Package Scheme (M-SIPS) reduced to Rs 914 billion as on April 2018, against the earlier proposals of Rs 1.57 trillion.
“Our exports will gain depending on specific products and their competitiveness in both markets. But since India’s exports are more attuned to global growth, any negative movement is likely to affect us badly,” according to Ajay Sahai, director-general, Federation of Indian Export Organisations (FIEO). India stands to gain little as barriers to trade remain high, especially with regard to those that are non-tariff in nature. India currently only has rights to export rice to China, of which the offtake hasn’t increased much.
For instance, government data on India’s overall exports to China in the fruit and nuts category includes a lot of items on which China has raised duties for the US. It shows exports fell to a low $6.37 million in 2017-18, a more than 60 per cent drop from $15 million a year ago.
China allowed India market access after 13 years. “After a persistent push from our side, China allowed market access to three Indian food products, mangoes, grapes and rice, back then. Even among these, China later introduced further subcategories for rice, and basmati varieties faced difficulties in exports,” a senior official from Agricultural and Processed Food Products Export Development Authority said.
Fears of China devaluing the yuan further are becoming more real. “Devaluation of the currency is one policy tool the Chinese have in their arsenal while dealing with the US. If that happen, pressure will be on the rupee as well,” said Tushar Arora, senior economist at HDFC Bank.
Although the rupee is on the verge of breaching 70 to a dollar, its fall vis-a-vis that other emerging market currencies is slightly more. This gives it a small advantage over its competitors, Arora said.
But there may be a silver lining for India. US exports to China currently under threat make up for nearly a fifth of total US exports in those categories, according to Washington DC. With that huge a market at risk, US sellers will now offer attractive selling prices, according to Indian businesses. According to the FIEO, consumer demand for many of these commodities have pushed up imports in recent years.