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How has Indo-China economic distancing helped India?

Trade has been a crucial component of any growing economy, especially with its neighbouring countries. A country would be in the most benefit when it shares peaceful and economic-friendly ties with all of its neighbouring countries, especially when they are global economic hubs. On this note, one may hope for trade between India and China to become deeper and wider. Well, it is not quite clandestine that this is not the reality, fortunately, or unfortunately. going back in history we see that the Indo-China trade was restored in 1978 after being suspended in the aftermath of Chinese aggression in 1962. The accession of China to the World Trade Organization (WTO) in December 2001 accelerated trade between the two countries. In this article let us consider the ups and downs between the Indian and Chinese government and their effects on the Indian economy. Even though this is a topic of mass debate just like the two sides of a coin, today, we shall be focusing on the positive side of this Indo-China distancing.

Trade Deficit and Dumping

While lopsided, Indo-China trade prospered till the coronavirus sprout. A large number of low-fare shoddy and falsified Chinese products flooded Indians markets, apart from certain essential items (electric machines, telecommunications equipment, pharmaceutical ingredients). The flood of Chinese imports affected the manufacturing sector, especially the micro and small industries, in India. China’s dumping has forced many industrial units to operate below capacity and to shut down in some cases and has had negative repercussions on local jobs.

The Chinese method of dumping goods on the Indian market included

(a) under-invoicing of goods,

(b) entering in incorrectly declaring prohibited goods,

(c) retransferring goods via other countries (mainly Cambodia, Singapore, and Vietnam),

(d) currency manipulation, and

(e) land smuggling.

China’s misconceptions led to an enormous commercial deficit. In 2019-20, India-China trading was worth 81.8 billion US dollars. India exporting to China was 16.6 billion US dollars, while Chinese imports amounted to 65.2 billion US dollars and the commercial deficit, therefore, amounted to $48.6 billion. This order’s trade deficit was of concern and India repeatedly raised it with its partner in the trade talks.

The report presented by the Chairman, Naresh Gujral to Parliament on 26 July 2018, the Department of Relations with the Parliamentary Standing Committee on Commerce, highlighted the catastrophic consequences of Chinese dumping in the domestic industry. Some of the labour-intensive and traditionally large job-generating sectors (such as textiles), resorted to different and cheap quality commodities. The dumping of Chinese solar panels resulted in almost 2 lakh jobs being lost as almost half the capacity of the domestic sector remained idle. 

However, in taking trade defence action against China provided under the WTO, India was less proactive. Given the 2017 Doklam stand-off, the Indian government hesitated to take some drastic steps against China and was afraid that China would squeeze its hand to its borders. The government, with extreme restraint, decided to ignore the neighbour’s threatening business practices.

Possible takeovers / procurement

By declaring the Covid epidemic a pandemic on 11 March 2020, the World Health Organization (WHO) had disrupted normal economic activities around the world. From March 25, 2020, India announced a stringent national lockdown. As economic activity was slowing, the Indian stock market was bizarre and equity prices decreased. Officially, China-funded funds have begun to acquire stakes in Indian companies that have been severely affected as a result of the pandemic. For instance, in the first quarter of 2020, the People’s Bank of China acquired a 1.01 per cent share in HDFC (the largest housing mortgage lender in India).

The Government swiftly twisted its policy on Foreign Direct Investments (FDIs) on April 18, 2020, to curb the takeovers and acquisitions of Indian companies by exploiting and making unfair use of the coronavirus pandemic’s economic effects. Under the revised policy, any investment by any entity of a country with a land frontier to India or a citizen of any of these countries, where the beneficiary of the investment was a citizen, would require the consent of the government. Also, any transfers owned by such a current or future FDI would require the approval of the government as well.

India shares its land borders with Pakistan, Bangladesh, China, Nepal, Myanmar, Bhutan, and Afghanistan. The government did not specifically mention China, but it was apparent that this move was designed to prevent Chinese companies from taking over Indian companies whose market values had fallen due to Covid-related uncertainties.

Intrusion into the Galwan Valley

In early May 2020, Chinese troops intruded into the Ladakh region’s Galwan Valley and thus, there was the trade and investment between the two countries witnessed a major reversal. India’s quick and determined military and the consequent economic response was unprecedented and distant from its traditional submissive approach. In a pre-planned and traitorous act, China martyred 20 Indian soldiers on June 15, 2020, marking the beginning of this process of economic distancing. The whole country was shocked and angry, forcing the government to stand firmly against the opponent.

India banned 59 Chinese apps on June 29, 2020. These included the extremely popular TikTok and UC Browser, citing reasons for national security. On 23 July 2020, another prohibition was issued against 47 additional apps. The government banned 118 additional apps on 2 September 2020. PUBG, the most profitable mobile game in the world, whose largest subscriber base is in India, was the biggest victim in this prohibition round. The total number of prohibited Chinese-linked apps was 224.

On 23 July 2020, Chinese firms were banned from bidding on the grounds of national security for public procurements for goods and services and the order included government funding for public sector banks and financial institutions, autonomous bodies, central public sector companies, and government-sponsored (PPP) projects. The government order also discouraged private companies in India from dealing with Chinese companies.

In the same sense, Bharat Sanchar Nigam Limited (BSNL) was invited to keep its 4G upgrade project from Chinese suppliers. The work on Talcher Fertilizers and Coal Gasification Project amounting to Rs. 13,277 was also stopped, which had been awarded to the Chinese company Wuhuan Engineering Company. These actions were part of several actions to reduce Chinese trade interests’ penetration in India.

As Chinese products are struggling in the clamour, several private companies are also showing interests in cutting down Chinese imports and support the government’s self-reliance or Aatmanirbharta mission. JSW Group pledged that it would be reduced to zero in two years on July 2nd, 2020, with current annual net imports of US$ 400m in China. Hero Cycles also announced on 8 July 2020 that trade deals worth Rs. 900 crores with China would be phased out withdrawn and the process of self-reliance moved forward. During the festival season, the general public boycotted Chinese products as well.

Self-reliant India (Aatmanirbhar Bharat)

Recognizing the pandemic and the conflict on the China frontier, honourable Prime Minister Narendra Modi announced the Aatmanirbhar Bharat Abhiyan on May 12, 2020, which included economic relief, policy reforms, and fiscal and monetary measures to help companies and individuals deal with the pandemic situation. For this purpose, a mega package was announced amouting to as much as Rs. 20 lakh crores. This is nearly 10% of India Gross Domestic Products (GDP). To achieve self-reliance in the defence sector, the government banned 101 types of weapons and munitions for five years on August 9, 2020.

Another economic stimulus package of Rs 2.65 lakh crore was announced by the government on 12 November 2020. The production boom using production-linked incentives (PLI) in ten sectors was allocated to up to Rs. 1.45 lakh crores, including electronics and pharmaceuticals which depended heavily on imports from China. This was in addition to PLI for mobile production and electronic components and APIs, which have already been notified (a key raw material for drug manufacturers).

India has promoted the domestic production of previously imported goods by creating new production capacities and expanding the existing ones. It has proven to be a double blessing in the country for this import substitution effort. It saved valuable foreign exchange by reducing imports along with promoting domestic production and home-grown jobs amid these challenging times.

On September 23, 2020, trade and industry minister Piyush Goyal informed Rajya Sabha that the Chinese Indian imports fell from 23.45 billion USD in the corresponding period the previous year to US$ 16.60 billion in April-July 2020.

China has killed the goose who have laid golden eggs by losing trade, investment, and credibility with the fifth largest economy in the world. While foreign investors flock in hordes to India, China is in the cold.

India’s economic disconnection from China has commenced and up to now, the complementary economies will soon become strong global competitors. The preference of Indian (Covishield and Covaxin) vaccines to China (Sinovac and Sinopharm) by countries around the world is a prerequisite. The pandemic has offered an opportunity and a challenge for India to emerge not only as a drugstore in the global pharmaceutical sector but also as a source of health and fitness.

Chinese people were stunned and struck by the quick, sharp, and determined response of both the government and the Indian people. The dragon which frightened the elephant all these years has been caught on the wrong foot and is now ready to dance with it. The Indians of 2021 have realized that they differ from 1962. In the interest of regional and world peace and stability, the recent disengagement of forces at the borders is welcome. India cannot, however, reduce its guards to prevent future malfunctions on its neighbouring borders. The message is clear and loud, Goliath versus Goliath has gone; the age of Hegemony is now gone.

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