India’s efforts to reduce import dependence on China seems to be paying off. Trade data for the financial year 2022-23 is showing a decline in imports from China which can be attributed to the ambitious production-linked incentive (PLI) scheme launched by the government of India in April 2020. The recently released tariff line level trade data for the financial year show that India’s electronics imports from China has decreased from $30.3 billion to $27.6 billion.
The slide in imports is notable in electronics items where the PLI scheme is operational, says a GTRI paper. During FY22 and FY23, imports of solar cells and parts (70.9%), laptops and PCs (23.1%), and mobile phones (4.1%) fell. Despite this, China remains India’s top import supplier, and India is critically dependent on China for various products. India’s total goods imports from China during the FY23 period touched $98.5 billion.
Indian imports from China
India’s total goods imports from China grew at a lower rate of 4.2% during the period, compared with global imports that grew at 16.1%. China’s share in India’s merchandise imports has decreased from 16.4% in FY18 to 13.8% in FY23, a decline of 15.7%.
The decline in imports from China could have a significant impact on the country’s economy. Most of India’s imports from China are in three product groups — electronics ($27.6 billion, 28.0% share), machinery ($21.1 billion, 21.5% share), and organic chemicals including APIs ($13.2 billion, 13.5% share). Of these, electronics imports recorded the steepest decline due to the PLI scheme.
READ I Sustainable transport: Rethinking mobility for a greener future
The PLI scheme was introduced by the government to encourage domestic production and reduce dependency on imports. The scheme offers incentives to companies to manufacture products domestically, thereby boosting domestic production and reducing imports. The scheme’s triggered a boom in electronics manufacturing in impact is visible in the decline in imports of electronic items from China, which are mostly produced domestically under the PLI scheme.
India’s exports to China during the financial year was $15.3 billion which is a decline of 28% from FY2022. India’s global exports grew at 5.3% during this period. China’s share in India’s exports decreased from 4.4% in FY18 to 3.4% in FY23. Major Indian products where exports to China grew are petroleum oil, naphtha ($1.9 billion, 5.1%), shrimp, prawns ($924 million, 12.4%), caster oil ($525 million, 2.3%), pepper ($423 million, 0.5%), and sulphur ($318 million, 20.%).
Traditionally, India had enjoyed a trade surplus with China. India exported goods of value $10 billion to China in 2005. Chinese trade records reveal that India had a trade surplus with China during the 2003-2005 period. After 2005, China raced ahead, and India’s trade deficit steadily widened. In FY2023, Indian imports from China were nearly 10 times its exports to China, leading to a trade deficit of $83.2 billion.
PLI scheme impact
The Production Linked Incentive (PLI) scheme is aimed at boosting domestic manufacturing and enhancing India’s position in the global supply chain. The scheme offers financial incentives to eligible manufacturers for the incremental production of goods in specific sectors. Under the scheme, eligible manufacturers are provided financial incentives based on their incremental sales of goods produced in India.
The incentive amount is calculated as a percentage of the incremental sales, and it varies by sector. The scheme seeks to encourage large-scale manufacturing and to attract investment into India. The Union Budget for the current financial year has allotted Rs 8,083 crore for PLI schemes. A major part of this amount (Rs 4,499 crore) is earmarked for large-scale electronics manufacturing.
The PLI scheme is expected to have a long-term impact on India-China trade relations. The PLI scheme could encourage other countries to follow suit, leading to a decline in China’s exports worldwide.
The move to reduce import dependence on China is driven by various factors other than economic reasons. Simmering border tension and other geopolitical concerns have contributed to the situation. While India is trying to reduce its trade deficit with China, China is expanding its presence in the Indian market through investments and trade.