India’s auto and pharma sectors are not ready to wean off China

Days after a border clash with China this month in which 20 Indian soldiers were killed, New Delhi told firms to find ways to cut imports from China. But two big industries, automobiles and pharmaceuticals, say this is easier said than done.

Like many countries, Indian companies relies heavily on China for products such as electronic components and pharma ingredients because it cannot make them or source them elsewhere as cheaply, company and industry figures said.

Thus any moves to curb imports or make them costlier without developing alternatives will hurt local businesses.

“We don’t import because we like to, but because we have no choice,” said R.C. Bhargava, Chairman of Maruti Suzuki India, the country’s biggest carmaker.

“To attract companies to produce locally, we need to be more competitive and lower our costs compared with other countries.”

India imported around $70.3 billion of goods from China in the fiscal year to March 2019, and exported just $16.7 billion - its widest trade deficit with any country.

The government is now consulting with companies on tightening curbs on 1,173 non-essential products, a trade body official said on condition of anonymity. They include toys, plastics, steel items, electronics and specific auto components - which feed vehicle manufacturing.

This is on top of plans to raise trade barriers and import duties on around 300 products from China and elsewhere, as part of Prime Minister Narendra Modi’s self-reliance campaign.

In April, India also tightened rules for investments from neighbouring countries, including China, to prevent opportunistic takeovers after the pandemic.

“If things do escalate, then India stands to lose a lot more than China,” said the chief of corporate strategy at one of India’s top 10 pharma-makers. “We cannot afford this.”

Over a quarter of India’s auto part imports - $4.2 billion - came from China in 2019, including engine and transmission parts, according to data from the Auto Component Manufacturers’ Association of India (ACMA).

Some of these components are critical and hard to source elsewhere immediately, said Vinnie Mehta, director general at ACMA, whose members include companies such as Bosch, Valeo and Minda Industries. “We cannot have a knee-jerk reaction, especially when we are emerging from the disruption caused by the pandemic,” he said.

Chinese supplies have also been a key factor in India’s booming drug industry, which exports cheap generic medicines.

Some of India’s largest drug companies, such as Sun Pharmaceutical Industries, Lupin and IPCA Labs, rely on China, and India overall gets about 70% of its supply of active pharmaceutical ingredients (APIs) from there, industry officials said.

“In the immediate future, we are going to continue to be reliant on China,” said Sudarshan Jain, secretary general of the Indian Pharmaceutical Alliance, which represents major drug makers, although he believed there was only “a very low likelihood” of API supplies being cut off.

However, this still leaves manufacturers dependent on low Chinese prices to be able to meet price controls on the home market and stay competitive abroad.

This month, China increased prices of the common pain reliever paracetamol and of ciprofloxacin, an antibiotic used to fight respiratory infections, by 25%-27%, one senior industry executive said. “This is an important antibacterial medicine. If we don’t buy from the Chinese, there will be shortages,” the executive said. “Ramping up capacity in India is a gradual, long-drawn process.”

A state in India has stalled a proposal by China’s Great Wall Motor to invest nearly $500 million, days after a deadly border clash between the two nations, potentially delaying the company’s plan to tap one of the world’s biggest car markets.

The state government of Maharashtra, home to the financial capital of Mumbai, said on Monday it had put on hold three investment proposals from Chinese firms worth Rs50 billion ($658 million) in total, including Great Wall’s.

The initial agreements are not cancelled, but further action is awaited, said Maharashtra’s industries minister Subhash Desai, days after his government signed them.

This is the latest setback for Chinese companies that are facing calls for boycott after 20 Indian soldiers were killed in clashes at a disputed border site, in a major escalation of a weeks-long standoff between the two nuclear-armed Asian giants.

Reuters