An Opportunity to Rethink India’s Economic Policies

India has in recent months taken some initial steps against predatory Chinese capital and technologies in its economy. Without quite naming China, the Indian government has both tweaked FDI rules to limit acquisition of Indian companies without government approval and banned a few score apps of Chinese origin on national security considerations. These are welcome decisions that have long been called for and should not have waited for either a pandemic or tensions on the Line of Actual Control (LAC) with China.

The Chinese Embassy spokesperson’s remarks that India’s actions are ‘discriminatory’ and her call for an ‘open, fair and just business environment’ constitute fine rhetoric but do not reflect in China’s own practices at home with Indian companies at the receiving end of such discrimination and non-tariff barriers in China for decades. The Chinese are also themselves masters at using tools of economic coercion against other countries and so if the US in its trade war with China or India now begin to rely on some of those same tools, Beijing should not be surprised.

However, there are two sets of questions that India needs to consider as it proceeds down this path.

The first are those to do with China itself. There is a difference between limits on Chinese investments and apps on the one hand and the boycott of Chinese goods on the other. While India’s massive trade deficit with China provides some leverage over Chinese companies dependent on the Indian market it also needs to be understood that these enterprises are usually supported by the Chinese central and local governments to tide over such phases. 

Indian private enterprises on the other hand, have no such luck from their central or local governments. While the Indian consumer can choose to boycott Chinese products, many Indian MSMEs especially during a time of economic downturn simply cannot find alternatives to Chinese inputs. Nor did most Indian companies anticipate such a crisis and proactively seek alternatives.

Meanwhile, the Chinese are not without options to retaliate. Several of India’s leading manufacturing sectors from pharma to automobiles are heavily dependent on Chinese components. It is not clear what the Indian government’s plan is if Beijing decide to put the squeeze on these or if it decides to reduce what little it imports from India.

A second set of questions has to do with the general ecosystem in India for trade and innovation. While China has been an object of envy for Indian government officials and analysts for a long time, neither have the right lessons been learned nor the right questions been asked. 

For all the blame they cop, Chinese phones and apps like Tik Tok, enabled opportunities for communication and access for the lowest rungs of Indian society. From organized labour migration to creating social media stars, India’s access to Chinese technology has engendered social and economic revolutions whose value ought to be counted in more than rupee terms. 

Against this backdrop, it is a question worth asking why nearly all of India’s biggest tech start-ups have not found adequate local capital but needed foreign investors to scale up. Finally, how is it that the Indian government is talking of the ‘strategic disinvestment’ of its PSUs while the Chinese have converted their own into world-beating ‘champions’ with stakes across the globe and in as short a period as a decade? 

The answer lies in the strategic direction and incentives China has provided its PSUs, having understood early that only they had the scale and buffer against risk to operate in difficult foreign environments and to meet national strategic objectives. New Delhi by contrast, undersells its PSUs and their capabilities.

China’s growing economic and military might should be an opportunity to rethink India’s economic policies not in bits and pieces but wholly and substantially.

Originally published as Jabin T. Jacob, ‘Crisis with China is an Opportunity to Rethink India’s Economic Policies’, TimesNowNews.com, 19 August 2020.

Published by Jabin T. Jacob

China analysis from an Indian perspective

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