Border clash prompts Indian industry to seek China alternatives

Indian companies are racing to find alternatives to Chinese imports after a deadly border clash prompted a popular backlash and raised the risk of official action against goods from its geopolitical rival.

China has become a vital supplier to Indian industry, with its share of total imports rising from less than 3 per cent in 2000 to 14 per cent this year, according to brokerage Motilal Oswal.

India’s pharmaceutical sector sources about 70 per cent of its starting ingredients from China, while its booming mobile phone market is dominated by Chinese imports and brands such as Xiaomi. Automakers source about 25 per cent of component imports from China including vital electrical parts.

But since the hostilities on the Himalayan border last month that left 20 Indian soldiers dead, authorities have signalled plans to reduce economic ties. They have held up shipments from China at Indian ports, banned 59 Chinese apps and are reportedly weighing further actions, including tariffs.

With a “Boycott China” movement also gaining traction among consumers, companies wary of getting caught on the wrong side of popular sentiment or the official response have vowed to act.

JSW Group, one of India’s top steelmakers, last week said it would cut its net imports of $400m from China to zero within two years. Sajjan Jindal, chairman, said the group, which imports Chinese steelmaking materials would work with local suppliers to help them build up capacity even though that would temporarily push up the cost of production.

“I will not deny a possibility of a slight discomfort in the next few months as we make this switch,” he said in an email. “In the long term, I believe we will be much better placed than we currently are, as most of our vendors will be producing the high quality of product we need within India.”

The chairman of the Apparel Export Promotion Council, A Sakthivel, said members were hit by delayed shipments of buttons, interlining and other items from China. They aimed to find alternatives within six months, he said: “We hope that this crisis becomes an opportunity for India.”

Pawan Munjal, chairman of India’s largest two-wheeler maker Hero MotoCorp, told the Financial Times last week that it had found domestic alternatives to its Chinese suppliers.

But analysts are sceptical about how quickly a meaningful shift can happen.

Longstanding efforts to turn India into a manufacturing hub have had limited success. The country was hurt by slowing growth even before the coronavirus pandemic, eroding companies’ and banks’ flexibility to invest and leaving consumers unwilling to stomach higher costs.

Ritika Mankar of Ambit Capital said: “Even if there were an argument to be made, maybe the timing of it needs to be at a time when India’s growth rate is accelerating rather than decelerating.”

Harsh Goenka, chairman of conglomerate RPG, said while there were ready alternatives to China for its tyre business — one of India’s largest — the group’s pharmaceutical business sources 80 per cent of its active ingredients from China. Any switch away could only happen after a concerted programme to build up domestic capacity, Mr Goenka said.

“There’s a lot of nationalistic jingoism happening right now,” he said. “Our point of view is to be pragmatic and find alternatives because it makes good business sense to do it . . . It’s more about business contingency rather than nationalistic.”