Target China: Examining China’s linkages with the Indian economy
Modern warfare is fought at many different levels, although the current military stand-off between India and China in the Himalayas started in the most medieval fashion — with clubs and fisticuffs — leaving 20 of our soldiers dead and an undeclared number on the Chinese side. Now in its third month, the situation at the border remains unresolved with the troops standing eyeball to eyeball and both sides piling up military hardware even as the talks between the two military commanders drag on. The other option in a conflict is diplomatic. This, too, is not making any headway despite Prime Minister Narendra Modi having met China’s supreme leader, President Xi Jinping, 18 times since 2014. China is turning a deaf ear to any international opprobrium and instead accusing India of being the aggressor.
This crisis with China could not have come at a worse time. India is battling the Covid-19 pandemic, which, ironically, was bestowed on the world by China, with our infection figures now crossing the 600,000 mark. Add to that India’s contracting economy, which has been decelerating for 13 quarters — from 8.58 per cent (Q3 FY’18) to just 3.1 per cent (Q4 FY’20). The IMF projects that the Indian economy will be in deep recession this calendar year with degrowth of -4.5 per cent while China will grow two per cent despite being the originator of the Covid-19 virus. This is a double whammy for us. The last thing India wants is a war on its hands. However, it must respond to China’s most blatant attempt — since the war of 1962 — to redraw the Line of Actual Control. With the military situation in a stalemate and the diplomatic initiatives yielding no result, the only option available to India is to exercise economic muscle in the hope that China realises that there are consequences to its adventurism. India fired the opening salvo by banning 59 Chinese smartphone apps on June 29, signalling a possible India-China trade war. This was a low-cost option for India but sent a signal to China about the potential loss of India’s huge market, as it involved some marquee companies. This was followed by a denial of government contracts to Chinese companies, especially for infrastructure projects, along with the introduction of new regulations making it mandatory to disclose where products are manufactured. This was done as a sop to the rising national chorus for a boycott of Chinese products.
All these measures make headlines but won’t cause China much economic pain. Beijing is India’s second-largest trading partner, with bilateral trade worth $110 billion, but this is not a relationship of equals. As the massive $55 billion trade deficit last year shows, India is far more economically dependent on China than China is on India. The fact that trade with India is just 1.9 per cent of China’s total trade shows how economically irrelevant we are to China even as its trade with us is 14 per cent of our total.
Two decades ago, our cover story ‘Enter the Dragon’ highlighted the growing trickle of Chinese goods into the Indian market. Over the years, as the People’s Republic leveraged its cheap labour and economies of scale to become the factory of the world, the trickle has turned into a flood. Indian consumers can’t seem to do without Chinese smartphones, electronics or footwear. Even if the final product is made in India, a critical and often high number of components come from China. Entire sectors like pharmaceuticals, automobiles and electronics rely on imports from our northern neighbour. And therein lies the complication of reducing our dependence on China.
Our cover package ‘Target China’, put together by Group Editorial Director (Publishing) Raj Chengappa, Executive Editor MG Arun, Deputy Editor Shwweta Punj, Senior Deputy Editor Amarnath K. Menon and Associate Editor Anilesh S. Mahajan, examines China’s deep linkages with the Indian economy. Chengappa looks at the government’s three-pronged strategy to deal with China in the short run while avoiding a backlash. Our editors examine the implications of Chinese products accounting for 66 per cent of India’s $9 billion smartphone market, over 60 per cent of India’s imports of electronic products, one-fourth of our imported auto components, 68 per cent of imported footwear and 67 per cent of active pharmaceutical ingredients. By contrast, India’s share in Chinese imports in any category rarely exceeds 5 per cent. Chinese investments have also fuelled the Indian start-up ecosystem, which has grown 12 times in the past four years to $4.6 billion. They are smartly betting on our future technologies. Our cover package also includes a panel of experts voicing their views on how to conduct our economic relationship with China.
Clearly, a blanket ban on economic engagement with China is no answer. It will hurt us more. In the wake of the pandemic and the Chinese aggression, the prime minister’s new economic mantra of atmanirbharta or self-reliance has acquired fresh significance. However, it is a many-splendoured thing, as it means different things to different people. Some see it as import substitution resulting in higher-priced and perhaps lower quality Indian goods, others as India becoming more competitive and part of the global value chain. This is undoubtedly a worthy cause, but we must tread carefully so as not to upset the whole apple cart. It has to be done with a strategic plan, both long and short term, executed with consistency and not swayed by political pressure.
While we wrap ourselves in the national flag and rant about China, it is worthwhile to note that the dragon is able to show us its teeth because of its economic prowess. In 1980, China’s GDP in PPP terms was $304 billion, India’s $383 billion. In 2019, its GDP is $27.3 trillion, two and a half times more than our figure of $11.3 trillion. Its current defence expenditure is $250 billion while ours is $66.5 billion. It has virtually ended poverty, with only 0.5 per cent of its population earning less than $1.90 per day, while 20 per cent of our people remain poor. Over the past four decades, we have seen how our ruling class, infested with self-serving, incompetent politicians and corrupt bureaucrats, has led us to this sorry state, with its twisted policies and ill-conceived plans. Are they willing to go beyond catchy slogans and implement fundamental reforms to make us the economic powerhouse we richly deserve to be? To ensure that we do not find ourselves in this predicament again when confronted with our next crisis? To my mind, there is no choice. This has to be a rude awakening for India.
(India Today Editor-in-Chief's note for the cover story, Target China, for July 13, 2020)
Also read: India-China clash in Galwan: Why it is time for pragmatism