India’s growth story stuck between US, China

D Ravi Kanth | Updated on June 25, 2020

Three-way clash on multiple fronts

Tensions with China are forcing India to relook its trade policy. The US, on the other hand, has dealt a major blow with its visa ban

These are dystopian times brought about by three heavyweights of the global order. The US, India, and China are currently mired in a health crisis caused by the Covid-19 pandemic. And, they are also locked in a triangular clash, either militarily or on the trade front. Despite the repeated bearhugs between the three leaders — Prime Minister Narendra Modi, President Donald Trump, and President Xi Jinping — tensions have escalated with limited prospects of resolution.

After the June 15 Galwan Valley setback inflicted by China, the Narendra Modi government is now toying with various options to hit back against the Middle Kingdom. While the military preparations could take time, it reckons Beijing could be punished immediately on the trade front.

The government’s e-commerce platform, for example, made it mandatory for sellers to indicate the country of origin while registering new products on the portal. This would certainly please the domestic traders’ associations and the virulent social media manufacturing groups. According to media reports, the Commerce and Industry Ministry wants the Government e-Market (GeM), which has transactions worth more than $1 billion, to adopt this approach and promote call for an ‘Atmanirbhar Bharat’. India is also reported to have made a long list of goods from China to be subjected to punitive trade barriers. These moves are bound to be likened to protectionism, while raising the pitch for boycott of Chinese goods. After implementing Make in India and other Chinese-led investment programmes in India, a sudden departure without a proper policy in place, could undermine India more than China.

Trade with China

Consider the data provided by Vignesh Radhakrishnan, Sumant Sen, and Naresh Singaravelu in their report ‘Is an economic boycott of China feasible for India?’ in The Hindu on June 24. While 5.1 per cent of India’s exports was destined for China last year, 3 per cent of Chinese exports came here. On the import side, 13.7 per cent of India’s imports came from China, while China saw an insignificant share of its imports coming from India. The two-way trade with China registered marginal growth, with Indian exports increasing from 3.9 per cent to 5.1 per cent between 2015 and 2019, while imports from China hovered around 15 per cent.

China accounts for a major share of India’s imports of antibiotics, nitrogen compounds, diodes and transistors, tubes and pipes of iron and steel, and electric accumulators, to take just a few examples.

It is an open secret that the much-prided Indian pharmaceutical industry is heavily dependent on bulk drugs from China. China is also the major supplier of semiconductors to India. And Chinese investments in the so-called Indian unicorns such as Snapdeal, Ola, Swiggy,, Flipkart, and BigBasket run into hundreds of millions of dollars.

Against this backdrop, would it be feasible for India to carry out an economic boycott? The writing is on the wall: For hundreds of millions of poor consumers in India, Chinese goods are certainly most affordable and accessible. Even if India wants to terminate structural dependency on Chinese goods and investments, the Modi government could draw lessons from China to use the policy space with which Beijing built up its industry in the past four decades.

Those successful Chinese policies were centred around forcing foreign companies to set up plants in China to share their technologies. India, with its huge market, should have also implemented such domestic industrialisation policies. That’s what former PM Jawaharlal Nehru chose to implement, and his policy of self-reliance is far from a slogans like “Atmanirbhar Bharat” without much substance.

US setback

In contrast to China, Trump has struck a body blow to India by suspending new visas to Indian software and other highly-skilled professionals under the H-1B and L-1 visa schemes. Despite buying billions of dollars of Apache helicopters and other defence equipment, Trump paid back Modi by blocking the H-1B visas, potentially affecting the morale of Indian professionals.

India enjoys a distinct advantage in supplying short-term service providers for managing American IT companies that are starved of manpower. But the Trump administration’s war against immigration appears to be more of a war against Indian software and other professionals. The US is not even prepared to sign a totalisation agreement with India for protecting the rights of short-term IT and other service providers who divide their career between two or more countries.

The US, however, wants the data localisation norms to go so that its IT behemoths — Google, Amazon, Facebook, Apple and Microsoft — can monetise on Indian data. More than China, the recent deal between Reliance and Facebook amidst the Covid-19 pandemic could usher in a new phase of anti-“Atmanirbhar Bharat” equivalent to the damage wreaked by the East India Company.

Published on June 26, 2020

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