The recent border conflict with China in the Galwan valley of Ladakh is unprecedented and has heightened geopolitical tensions. This has caused significant backlash in India and there is a strong narrative of reducing trade dependence on China, according to a report by Motilal Oswal.
Here some of the Indian sectors that are most exposed to China, according to the Report
From a sectoral perspective Auto, Consumer Durables, Pharmaceuticals, Telecom, Chemicals and Renewable Power sector (Solar) seem to be the most dependent in terms of sourcing from China.
Also, in many cases there appears to be a lack of alternative suppliers at the same scale or costs.
While Consumer Durables is 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% 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.
"Any potential escalation between the two nations could increase operational/supply-chain risks in the current economic backdrop, even as economies look to recover from the pandemic. Overall, it would be difficult and expensive for Indian firms to immediately find alternative suppliers, in our view," Motilal Oswal has said in its report.
Snapshot of key macro trade metrics between India-China
From barely any deficit in FY00, India ran a trade deficit of USD48.6b (1.7% of GDP) with China in FY20.
"India's imports from China have risen steeply from just 2.6% of total imports in FY00 to an all-time high of 16.4% in FY18 before easing to 14% (USD65.3b) in FY20. India's exports to China, as a percent of total exports, have just started picking up pace after touching 3.4% in FY16. In FY20, it stood at USD16.6b or 5.3% of total exports from India. Finally, as per official data from the Department of Industrial Policy and Promotion (DIPP), China's FDI inflow over FY00-20 to India stood at a mere USD2.4b out of India's total FDI inflow of USD470.1 billion," Motilal Oswal has said in its report.