India has taken on china on the Economic Front but knowingly in a phased manner
By
Colonel Awadhesh Kumar, Special Forces
A year after the PLA attacked the Indian Army across the LAC in Galwan Valley of Ladakh causing bloodshed on the desolate heights of Ladakh, the India-China Stand Off continues. The June clash of last year was the bloodiest in decades, leading to 20 deaths on Indian Side and over 40 deaths on the Chinese side, wounded were in addition. Even though, it did not lead to any further firing of bullets or artillery being fired across the Line of Actual Control.
Chinese thought that like earlier times, while talks will take place to de escalate tension on the LAC, rest of the things or business will remain as usual with they holding all the aces and the advantages.India instead decided to change tactics and adopt a more intense form of retaliation, for effect, in the form of an economic denial. Chinese Apps minting money in India were banned, contracts were cancelled and incoming cargo shipments were delayed for security checks.
Since in a globalised economy, breaking dependency completely in one stroke from China would not be in our interest, so India decided to do it in a phased manner. Detailed reports indicate that the Government of India has slowly started stopping incoming Chinese investments and placing many other restrictions on China. Indian policies also started its focus on taking the Indian industries to new level to play a dominating role in the changed future global market. Everything would be done one thing at a time.
Finally India decided to call the Chinese bluff and take the bull by the horn. It was clear that in spite of Doklam Stand off and the Maldives elections, Chinese were still not taking India seriously. So for the first time India decided to hit back at what China loves best ……trade and Commerce or in short use economic warfare as a policy. Quite some time back India had indeed placed economic restrictions on countries like Nepal and Malaysia over issues which then got resolved reasonably amicably. However this was dangerous and different as it was going to be against the Number Two Economy of the World that is against China. Even after the 1962 war with China, the trade between the two had been disrupted but that was not due to any policy decision.
Upset with Chinese violation of Indian Sovereignty in Pakistan Occupied Kashmir through its CPEC projects and its blind support to Pakistan over Kashmir, India had already commenced various economic measures. Finance Minister Nirmala Sitharaman’s in February 2020 annual budget had a few provisions for hiking customs duty on import of cheap Chinese raw materials. Next move came in April when the Chinese Wuhan Virus pandemic had already led to a national lockdown. A Chinese state-run bank picked up a minority stake in HDFC Bank and the alarm bells began ringing. The Indian government immediately issued an order blocking the automatic route for Chinese investments in Indian entities. Without naming China, the restrictions were imposed on all countries sharing a land border with India. National security was also cited in many other cancellations of various contracts. Beijing began seething with anger because it began hurting Though at the same time it could do nothing about them. So June attack may have been planned by the Chinese Communist Party in seething rage, which backfired miserably.
Thus came Galwan and India went hammer and tongs on China, with a barrage on vulnerable economic targets. A couple of hundred of Chinese apps minting millions in India were closed down along with the TikTok which was multi million. Various Government run entities cancelled contracts with Chinese companies, ranging from solar panels and telecom equipment to railway infra. To prevent Chinese goods coming through third countries, a Country of Origin’ tag became mandatory for products on the government’s e-Marketplace. The restriction on buying power supply systems from China was particularly significant, as power equipment was one of Chinese major export item to India.
Road Transport Minister Nitin Gadkari also firmly indicated that Chinese firms would be kept out of India’s highway construction projects that would see spending of several lakh crores in the coming years.
However, India is not doing these things blindly. Though earlier US had replaced China as India’s biggest trading partner in recent years, a tariff war was begun by Trump. So India had turned to China partially.
Thus figures indicate that China had last year (2019-20) supplied total goods worth 65 billion USD thus becoming number one exporter to India. Further for 2020- 21 while overall trade declined in the year of pandemic and national lockdown reduced by 32 per cent, trade with China fell only by 15 per cent. This was due to the fact that certain orders had already been placed earlier and paid for. Also many Chinese items included life-saving oxygen equipment and drug formulations, which we found more prudent to import.
However economic warfare against China has been quite effective and even the Chinese know it. After Galwan clashes 87 per cent of Indian consumers have shown their willingness to boycott Chinese goods. Though once the Unlock process started, the orders already in pipeline but temporarily blocked due to pandemic began arriving. Thus imports actually increased to near pre-lockdown levels in the months following the clashes. However Chinese have now lost a major market. It will start affecting them and sooner than later, they will start feeling the impact.
India is fully aware that for reducing dependency on China, we need to first ensure the availability of alternatives and so this is being done. This we are doing it in a phased manner without being sentimental or foolish. Any sudden economic boycott of China will also hurt us. However we are moving quite rapidly towards becoming Atmanirbhar.
India is on its way to create its own economic infrastructure. For this the domestic ecosystems are being established. Presently nearly 70 per cent of electronic components, 70 per cent of Active Pharmaceutical raw materials that go into making medicines by India’s pharma companies, and 40 per cent of leather goods come from China. In finished goods, more than half the smart TVs in India are Chinese. About 80 per cent of all smartphones sold in India right now are Chinese brands. While the big ones are now ‘made’ in India, it is more an assembling set-up, with many components coming in from China.
Cost is a major factor of importing goods from China. Fertilisers are 76 per cent cheaper, electronic circuits 23 per cent etc. Since several years now our service sector has been attracting FDI. Now through various initiatives FDI from non Chinese sources need to be diverted to the manufacturing industry, then it would prove to be a huge boost.
The government strategy has begun by giving production-linked incentive (PLI) schemes where companies both foreign and domestic that set up manufacturing are being offered something akin to a ‘cashback’ for meeting annual targets. Already, such schemes have been announced for mobile handsets, electronics, auto components, electric batteries, LED bulbs. Additionally, the Centre has also set up industrial parks to kick-start an environment conducive to development of domestic production, like those announced for pharma industry, toys. It’s not going to be quick, or easy. It’s a very slow process and requires very huge, investments.
Just one item like open cell panels account for up to 70 per cent of the cost of a TV—setting up a production plant for it is estimated to cost a massive Rs 60,000 crore. For this we need well-developed business hub around, with many TV manufacturers buying from it for a global market. For manufacturers, China is cost-effective and offers a time-tested, flourishing raw material supply network. It will make sense for them to uproot and come to India only if there are enough attractions in the form of land and tax breaks, as well as a well-developed supply chain. And the supply chain won’t come in unless there are manufacturers in place. However after the Wuhan Virus pandemic, the world has realized its mistake of over dependency on the Chinese supply chain. So multinationals are breaking away from China and many are looking upto India.
“We have to give incentives for companies in China or elsewhere who want to invest in India and set up plants like that. Thougj It cannot happen overnight; the groundwork has to be set up.
In case the government makes it attractive with the right measures, India could well become the manufacturing hub of the world in 5-10 years. “India has to build its own infrastructure and go in a very granular way to replace imports from China. We have kept the Chinese at bay physically, we have pushed them back and shown the strength of India. Now we need to go all the way to substitute them.
