India is considering imposing restrictions on online purchases of goods from Chinese e-commerce platforms, the Indian newspaper Economic Times (ET) reported. Import restrictions may be a very unpopular policy in India because it will push up the cost of living for local people.
Although wages are rising in China, made-in-China products retain a competitive edge on price thanks to multiple market factors such as a complete industrial chain built in the country. A large number of products from China are cheap and of relatively good quality, and that is the main cause of the growing popularity of Chinese e-commerce platforms in India. Chinese fashion platform Shein, which tripled its business in India in less than a year, clocks an average order value of 1,000-1,500 rupees ($14-$21), according to another ET report. Lower prices help reduce the cost of living for Indian citizens.
Tariffs on goods from Chinese e-commerce platforms will raise the cost of living. This may raise discontent among low-income people and further split Indian society where the gap between the rich and poor is already a big issue.
Chinese products are cheaper than Indian goods. If India cannot change the situation by improving its manufacturing efficiency, demand for Chinese products won’t disappear in India. Heavy government intervention may encounter resistance from Indian citizens, so the key to address the issue is to promote manufacturing and industrialization.
Foreign investment can help develop India into a manufacturing hub. Several years after the Modi administration launched its “Make in India” campaign, the government has taken successful action in areas such as tax reform to encourage foreign investment, but further moves will be needed.
One question worth considering is: As Chinese labor costs rise, why are more manufacturing companies moving their plants to Southeast Asian countries like Vietnam, rather than India?
Vietnam has a number of free trade agreements with countries including China. A high-standard free trade network helps Vietnam integrate itself into the Asian industrial chain and increase its exports. Official figures showed Vietnam exported about $10.4 billion worth of goods to China in January and February, up 93.3 percent year-on-year.
India is at a critical stage for ramping up its manufacturing capacity, and Vietnam’s experience can be used as a reference point. It is understandable that India wants to reduce its trade deficit with China, but focusing on industrial cooperation may be better than import restrictions.