Patient, responsible strategy should mark India’s economic response to China

India has blocked 59 apps with Chinese links that included the popular TikTok, WeChat and UC Browser, terming them “prejudicial to national security.” New Delhi is moving to limit its trade with China after a military clash with the country killed 20 Indian soldiers in eastern Ladakh. China has clearly signalled that it doesn’t value its economic ties with India. A knee-jerk disruption in trade ties will likely hurt Indian businesses and the poor. India needs a long-term strategy to replace China at the core of the post-Covid-19 global economic order, writes Harsh V Pant.

Harsh V Pant, Business Standard
30th June

As India comes to terms with Chinese border aggression, New Delhi is working on a number of options across a range of domains in order to impose costs on Beijing for its misadventure. One sector in focus is trade and economics. It is indeed ironical that this should be the case as one of the claims made by those supporting greater economic engagement has been that it induces cooperative behaviour between state actors. For a relationship like India and China's, which has been fundamentally fractured since 1962, economic ties were viewed as the much-needed balm that would reduce distrust. Today this very sector, for many Indians, should be the focal point of India’s expression of outrage vis-a-vis China.

China’s mishandling of the coronavirus pandemic in its initial stages resulted in a global health crisis that has caused economic distress and generated a backlash worldwide against the Chinese Communist Party. Demands for a boycott of Chinese products that have risen in India from time to time in the past have only become stronger in recent months. Even before Indian and Chinese militaries started squaring off across the Line of Actual Control (LAC), Prime Minister Narendra Modi was suggesting that the biggest lesson from the Covid-19 pandemic was the need to become self-reliant. New Delhi, however, had been underlining that this call for 'Atmanirbhar Bharat' was in no way protectionist and was certainly not directed at any other country including China. However, there has been a concerted attempt by India to reduce reliance on Chinese imports as well as investments in recent months. After the border crisis erupted, it has been quite clear that the gloves are off and India will be considering all possible options on the table, including seriously limiting trade and commercial ties with China.

The government on Monday night announced blocking 59 apps with Chinese links that included the hugely popular TikTok, WeChat and UC Browser, terming them “prejudicial to sovereignty, integrity and national security.”

The Indian Railways in mid-June terminated a Rs 470 crore contract to a Chinese firm for signalling works in Uttar Pradesh. BSNL and MTNL, two state-owned telecom companies, have been barred from using Chinese equipment for upgrading their 4G facilities.

New Delhi is reportedly listing alterative suppliers of critical components that India can’t manufacture and can be used as substitutes for Chinese imports. Private group Confederation of All India Traders (CAIT) is calling for reducing imports from China to $13 billion by December 2021 from $70 billion in 2018-19. With China’s share in Indian’s total imports being around 11.8 per cent and Indian exports to China barely 3 per cent, India’s trade deficit has been a persistent problem. On the investment front, Chinese investment has been growing with around $4 billion investment in Indian start-up sector since 2015.

Chinese reality

A knee-jerk disruption in trade ties will likely hurt Indian businesses and the poor, especially at a time when the economy is beginning to re-adjust to the new normal of Covid-19. As India tries its best to emerge as a global investment destination and global supply chains are rejigged, it will be some time before it can match the sheer scale of China. New Delhi has been right to focus on developing its own manufacturing capacities but it is not going to happen soon. It’s a sensible long-term goal for Indian policy-makers to pursue but it won’t change the operational realities in the short term. A blanket ban on Chinese imports will not only derail the nascent recovery post Covid-19, but also challenge Indian aspirations to emerge as a manufacturer of finished goods.

There is also the issue of India as a responsible global player. As a nation that has often argued that playing by the rules of the WTO is essential of global economic stability, any arbitrary trade behaviour on its part will jeopardise its diplomatic campaign to target China as the great disrupter. New Delhi, of course, can’t be prevented from cutting off economic ties with China if and when hostilities between the two countries escalate but that is likely to be a measure of last resort.

In the short to medium term, therefore, a complete economic break with China is neither desirable nor necessary. Instead, New Delhi should use the threat of an escalated trade and economic conflict as a lever to continue to keep China on tenterhooks. In a relationship devoid of substantive leverage, every possible measure should be exploited with due consideration. Just as military confrontation has a logic of its own when it comes to escalation, an economic confrontation should not be presented as a fait accompli but as another step in a ladder which New Delhi should seem ready to climb.

There is no doubt that India has to reduce its economic dependence on China in the long term, but for now a more sectoral walling off from China should be used to signal India’s seriousness of intent. With its recent actions, China has clearly signalled that it doesn’t value its economic ties with India. New Delhi’s response should not be driven by the immediacy of emotion but by the long-term need of building its own economic sinews so that it can manage to sit at the core of the post-Covid-19 global economic order.

(Prof Harsh V Pant is Director, Studies & Head, Strategic Studies Programme, Observer Research Foundation. The views expressed in this article are personal.)

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