Six steps to reduce dependence on Chinese imports: IIM Indore study

The report further added that developing competitiveness should be the strategy.
In another step towards 'Aatmanirbhar India', a NITI Aayog-supported research paper by Indian Institute of Management (IIM) Indore and University of Pennsylvania, Wharton School has suggested six strategies for the Government of India to reduce dependence on Chinese imports. 

Among the six steps towards reduced dependence on Chinese imports include product segmentation, making use of the country's existing ecosystem, becoming member of key trade agreements and modifying the work processes and organisational design of Government of India (GoI). 

India was far ahead of China in technology till the 1980s, while China was economically behind India till late 1970s. However, citing the 1984 event when India refused America and Germany's proposal to produce high-tech complex capital goods, plastics and chemicals on the grounds of being a non-aligned member country, the paper co-authored by IIM Indore faculty member Prashant Salwan suggests laying of foundation of what is today seen as Chinese aggression in international trade. 

"America and German firms were forced to go to China, a communist government, as India had categorically refused to partner with them... China undertook the strategic planning at the country level for the first time in its history in 1984. Developed countries were forced to give the technologies to Chinese firms. It was post 1991 that Indian government realized what they had done, but it was too late," the paper states. 

However, now with the Chinese aggression leading to the Indian government rethinking trade strategies with China, the paper has suggested six steps including strategic planning on the lines of the neighbouring country. 

"To reduce the dependence of Chinese products, GoI needs to analyze imports from China, and develop the way forward. GoI needs to implement bottom up and top down a hybrid approach for strategic planning. Various government departments should do their own strategic planning using industries bodies, data mining as inputs, while NITI Aayog and PMO should take independent inputs from a country level point of view. Then both the inputs from departments and from NITI Aayog should culminate into a country level and industry level planning," the paper states.

Further, based on the economic complexity model, the Indian government can formulate proper road map through compartmentalise them as per technology and innovation capabilities. For this, the research paper has divided roughly 900 products currently imported from China into four segments including high-tech products, electronics, commodity technical products and commodities. 

According to the paper, while the first two categories including those products which require advanced innovation capabilities like complex capital goods and technology products which require acceptable level of innovation capabilities and customization like telecom equipment, mobile and electronics products can be sourced through alternate suppliers in the short term even while long term strategies include developing indigenous competencies in next three years.

On the other hand, the other two categories including commodity technical products which have basic technology and cost is the differentiator like diode and integrated circuits as well as commodities like agriculture produce, metals, can see stoppage of imports from China either immediately or within next six months with MSMEs and large firms being encouraged to start production indigenously.

Among other steps suggested to reduce imports from China include playing a more proactive role in economic agreements. "It is sad but true that India marks in FDI index is lowest in economic agreements segment. Economic agreements help in making the countries products economically feasible. Agreements like ASEAN countries, EU, Latin American countries under MESACOR and NAFTA have helped the growth of members countries. India need to play more proactively in economic agreements," the paper suggests.

As part of formulating strategies, the research paper calls for modification in working  design of the Government of India as well as develop skill sets and entrepreneurial ecosystem in the country. 

"Government departments need not work in silos. Departments need to talk with each other, share data and systematically and comprehensively formulate strategies. It also needs to enhance skill development in high tech production . GoI needs to invest in to developing entrepreneurs, those who can think new value addition services and products. Banning of Chinese apps will increase startup investment in IT product development," the paper further states.

The report further added that developing competitiveness should be the strategy. For instance, taking the example of Active Pharmaceutical Ingredients (APIs) where India lost competitiveness to China, the paper suggests not repeating the same. 

"We import 60 per cent of API from China. Indian public sector used to produce API but they could not fight the price competition from China which is 25 per cent cheaper and were closed. Indian government should think about policy changes to make India again become competitive in producing API . Roughly 58 key API should be produced in India. Government should not be worried on a long gestation period," the paper suggests given that results will be seen in 2-3 years.

To top it all, NITI Aayog has already provided its inputs to the paper including recommending segmenting imports from China into capital goods (high tech), intermediate goods (tech and commodity tech products) and consumer goods (commodities). Moreover, as part of its inputs to the paper, NITI Aayog has said that 58 key APIs will be produced in India and multiple policy decisions have already being taken with regard to facilitation of APIs and other pharma products production in India. 

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