Indo-China yarn: Modi with Xi.

Indo-China yarn: Modi with Xi.

Strained India-China ties may increase supply chain risks in many sectors

Xiaomi placing 'Made in India' logo to cover store branding: Trade body

Agency Report | New Delhi | 25 June, 2020 | 11:10 PM

Any potential escalation between India and China could increase operational and supply-chain risks in the current economic backdrop, even as economies look to recover from the pandemic, brokerages have said citing the recent border tension between the two countries. The most affected sectors could be Auto, Consumer Durables, Pharmaceuticals, Telecom, Chemicals and Renewable Power sector (Solar) that seem to be the most dependent in terms of sourcing from China.

According to an India strategy report by Motilal Oswal Institutional Equities, it would be difficult and expensive for Indian firms in certain sectors to immediately find alternative suppliers at the same scale or costs.

This could create big problems for such companies who would not only have to look quickly at alternate source of supplies but also be ready to add up costs at a time when the Covid-19 has severely 444dented overall economic conditions and squeezed demand in several sectors.

While Consumer Durables are dependent on China for components, Pharma is dependent for API sourcing. Telecom is dependent on China from a network standpoint as well as for 4G smartphone handsets as China caters to more than 75 per cent of the Indian handset demand. Various sectors have material inter-linkages with China and form a critical part of the supply-chain for many firms in India, the report said.

“In the short-to-medium term, we believe the deep inter-linkages of several sectors preclude any meaningful retaliation on the trade front. However, as the world looks to de-risk its supply-chain from China given the back drop of the COVID-19 pandemic, from a long-term perspective, the need for emphasis on Indian Manufacturing gets reinforced now, the brokerage report has said.

In this regard, the government’s drive for self-dependence in various aspects (Atmanirbhar Bharat) should bring the necessary change that could sustain the changes in market dynamics.

“For sustained change, however, we believe structural reforms encouraging manufacturing (ease of doing business, ease of compliance burden, etc) and market reforms (land, labour and capital) would augur well to augment India’s manufacturing competitiveness,” the report said.

India’s growing linkage with China can be seen from the developments on the trade front. From barely any deficit in FY2000, India ran a trade deficit of $48.6 billion (1.7 per cent of GDP) with China in FY20. India’s imports from China have risen steeply from just 2.6 per cent of total imports in FY2000 to an all-time high of 16.4 per cent in FY18 before easing to 14 per cent ($65.3b) in FY20.

India’s exports to China, as a per cent of total exports, have just started picking up pace after touching 3.4 per cent in FY16. In FY20, it stood at $16.6b or 5.3 per cent of total exports from India. Finally, as per official data from the DPIIT, China’s FDI inflow over FY2000-20 to India stood at a mere $2.4b out of India’s total FDI inflow of $470.1b.

In Auto, 27 per cent of total import content is from China with the country being a key supplier of sub-components used in engine, electrical/electronics, alloy wheels, tyres, etc. Similarly, in pharmaceuticals dependency on China for key starting materials is 60-70 per cent. A ban on imports from China could lead to supply-chain disruption in the Indian Pharma industry.

In e-commerce, Chinese companies have high investment exposure to some key start-ups in India. With the pre-screening of Chinese investments in India, some Indian tech start-ups could face a supply crunch in funds from new and existing investors.

Despite asserting that anti-China sentiment was mainly limited to social media, Xiaomi — it ppears fearing a backlash amid the India-China stand-off — has begun covering its retail store branding with the Made in India logo in white colour, the All India Mobile Retailers Association (AIMRA) said on Thursday.

The action came after the association sent a letter to all the Chinese mobile brands to bring the “ground reality” to their notice.

Anti-China sentiment stirred up in the country following the deaths of 20 Indian soldiers in a clash with the Chinese People’s Liberation Army (PLA) in Ladakh’s Galwan valley on June 15.

“Mi (Xiaomi) has started putting ‘Made in India’ banners in white colour on its boards,” Arvinder Khurana, National President, AIMRA, said on Thursday.

When contacted, Xiaomi declined to officially comment on the development.

In its letter, AIMRA requested the Chinese mobile phone brands to “allow retailers to cover these signages with cloth/flex or to remove the boards from the storefront for a few months”.

The association of the mobile retailers pointed out that anti-social activists had recently visited several markets in Mumbai, Agra, Jabalpur and Patna and damaged the signages of Chinese brands.

“We sent the letter to ensure safety and security of our members and their stores. We have seen a little aggression in the market places,” Khurana said, adding that certain organisations have given retailers one week time to remove Chinese branding from their stores.

“We thought this could be a threat in the coming time if the aggression goes up. We are worried about the safety of retailers. What will happen if stores are set on fire, or if items of the stores are stolen or the retailers suffer physical injury?,” he said.

AIMRA said it had requested all Chinese brands including OPPO, Vivo, OnePlus, Motorola, Realme, Lenovo and Huawei to remove boards from the store front.

Damage to the boards displaying Chinese branding should not be the retailer’s liability, it said.

“So we have written to the brands, requesting them to remove the branding. It so happens that some brands give retailers some margin because of the branding. In other situations, some brands have taken heavy security deposits from retailers to put their boards,” Khurana said.

“We are requesting that if tomorrow some boards get damaged, the security deposit of retailers should not be forfeited or they should not be made to pay for it,” he added.

Xiaomi India Managing Director Manu Kumar Jain tweeted last week that Xiaomi is “more Indian” than any other smartphone brand in the country.

In an interview to news channel CNBC-TV18 last week, Jain said that anti-China sentiment was limited mainly to social media and it had not impacted Xiaomi’s business in the country. (IANS)