How cheap Chinese goods are bad for India

SPS Pannu
SPS PannuSep 16, 2015 | 13:37

How cheap Chinese goods are bad for India

While India draws solace from the fact that its growth rate has surpassed that of China's, the truth is that these numbers tend to give an exaggerated picture of the country's economic performance vis-à-vis the neighbouring giant.

The ground reality is that the Indian economy is being battered by cheap Chinese imports and this devastation effect is perhaps now most evident in the steel and aluminium sectors.


The sheer size of the Chinese economy, which has shot well past the ten-trillion-dollar mark, dwarfs the Indian economy which is still hovering around the two trillion dollar level. So a percentage point in growth here or there does not mean that the elephant is poised to catch up with the dragon.


As far as steel production is concerned, figures compiled by India's joint plant committee show that China produced a phenomenal 476mt of steel between January and July this year although it was a 1.8 per cent fall over the country's production in the same period last year.

India on the other hand, produced only 53mt of steel during this seven-month period but this was a 4.8 per cent increase over the preceding year.

Public sector steel behemoth SAIL has plunged into a loss during the April-June quarter of the current financial year as cheap imports mainly from China and South Korea and Japan as well, eroded its market share and brought down earnings. This is the first time in over a decade that the Navratna company has posted a loss. While SAIL posted a loss of Rs 321.64 crore in the first quarter ended June 30, 2015, compared with a net profit of Rs 530 crore in the same quarter last year.


Though domestic steel consumption grew about seven per cent in the first quarter of 2015-16, India witnessed an unprecedented 54 per cent jump in imports from countries like China, Japan and Korea which sliced off a large chunk of the market share of domestically produced steel. Private companies fared no better as the damage was across the entire industry.

Jindal Steel and Power (JSPL), for instance, posted a consolidated loss of Rs 339 crore in the quarter ended June, down from a net profit of Rs 418 crore in the same quarter last year.

Similarly JSW Steel reported a net loss of Rs 107 crore on a consolidated basis for the first quarter of 2015-16 compared with a net profit of Rs 657 crore in the corresponding period a year ago.


The world steel industry is plagued with massive overcapacity due to a slowdown in major steel consuming regions like the European Union, Japan, India and the US. Recent estimates for the world's surplus steel capacity have grown to 642mt, with China alone accounting for almost half of the global overcapacity.

This poses a potential danger if it is allowed to be dumped in the Indian market as it would result in low prices of the finished products, weak profitability leading to job losses and even bankruptcies of domestic firms.


The government has done well to announce a 20 per cent "safeguard duty'' on imports of hot-rolled flat steel products. This has come as a major relief to the steel industry but it is looking for a wider across-the-board hike in duty to contain the relentless surge in imports.

The government on its part has to move in accordance with the WTO rules and also the free trade agreements with countries such as Japan and South Korea that it has inherited from the UPA government.

According to official estimates, the market share of domestic producers has been declining since 2013-14 when it stood at 45 per cent and is expected to come down to 37 per cent in 2015-16 if the present trend continues.

The aluminium industry is also at the receiving end from cheap Chinese shipments and an investment to the tune of Rs 1.2 lakh crore could end up getting impacted. Balco has already announced the closure aluminium rolling mill in Chhattisgarh which will lead to a loss of 1,000 jobs.


A delegation from the Aluminium Association of India representing leading private sector companies Hindalco, Vedanta and public sector Nalco had met the finance minister on September 13 to apprise him of the Chinese danger confronting the industry. Aluminum imports accounted for 56 per cent of Indian consumption in 2014-15, domestic production comprises only 44 per cent. China, which possesses more than 50 per cent of world aluminium production capacity, is now exporting over 20 per cent of its products and its exports to India have surged in recent years.

The losses in the steel industry also have a cascading effect on the country's banking sector which is reeling under bad loans that have crossed a whopping three lakh crore rupees. Most of these banks are in the public sector and have given out loans for projects with long gestation lags. These include steel, power and highways sector projects where private banks are not as forthcoming.

The high proportion of non-performing assets (NPAs) weakens banks and reduces their capacity to give out more loans to spur economic growth. It also increases the burden on the government as more capital will have to be pumped into the banking system to meet financial prudence norms.

Last updated: September 16, 2015 | 13:37
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