Since Narendra Modi became India's prime minister, India's economy has taken a new direction as the global supply chain goes through major changes. After half a century of globalization, world trade started to go the opposite with the pandemic accelerating the regionalization of the global supply chain.
India's pursuit of "Make in India" and a "self-reliant India" was originally to decrease dependence on Chinese-made electronics. Also because manufacturing can create considerably more job opportunities than outsourced services. Now, supply chain moving from China can help the world's second-most populated economy to industrialize.
Limited manufacturing capacity
Manufacturing was never India's main focus. In the past two decades, the Indian government had reduced tariffs on imported computer products so that the costs for outsourced IT-services could lower, which dealt a huge blow on local manufacturers. According to data from UN Comtrade, from 2000 to 2020, India's intermediate goods imports, an indicator for a country's manufacturing capacity, look just like China's, but the compositions are far from similar.
About 80% of China's intermediate goods imports were components and industrial supply, while most of India's intermediate imports were fuel and industrial lubricant oil, which just showcased India's dependence on imported fuel.
China and India imports, 2000-2020 | |||||
Components for capital goods and transportation | Industrial supply | Fuel and lubricant oil | Primary-sector goods for industrial use | ||
India | 2000 | 10.20% | 48.76% | 38.47% | 2.57% |
India | 2010 | 10.19% | 50.70% | 36.45% | 2.65% |
India | 2020 | 13.15% | 50.06% | 32.78% | 4.02% |
China | 2000 | 32.59% | 55.41% | 9.47% | 2.53% |
China | 2010 | 37.39% | 44.87% | 14.38% | 3.36% |
China | 2020 | 16.28% | 64.06% | 15.52% | 4.15% |
Source: UNComtrade, compiled by Digitimes, July 2021
China's intermediate goods exports were almost 100% processed goods, while India still has 8-9% of primary goods, including precious metals, diamonds, and iron ore.
India and China's Primary and Processed Goods Exports
Source: UNComtrade, compiled by Digitimes, July 2021
India needs China to develop manufacturing
Last year, Indian and Chinese troops conflicted over long-existing border issues. In response, the Indian government imposed sanctions and restrictions on trade with China; 43% of Indians voluntarily boycotted Chinese products in the year since June 2020, according to Local Circles' statistics.
However, over 90% of imports from China are essential to India's manufacturing: 42% are industrial supply, 23% are capital goods and transportation components, and 27% are capital goods. India needs to devlope its own manufacturing sector more than ever, in the wake of changes that are happening in the global supply chain, but there's still a long way to go, and that entails more imports from China.
