The joint announcement by India and China last week to disengage their troops from Patrolling Point (PP) 15 in the area of Gogra-Hotsprings at the LAC in the western sector is a significant step towards a partial rapprochement between the two neighbours. China-India ties have been at their lowest level in decades since the June 2020 clashes in the Galwan Valley, Eastern Ladakh. The immediate joint statement is a welcome improvement over the earlier hardening positions wherein India had insisted that normalisation of bilateral relations is not possible as long as the border situation is unstable. China continued to maintain that the border issue can be put on the backburner to normalise ties. The breakthrough, coming as it does just before the Shanghai Cooperation Organisation (SCO) Summit in Uzbekistan beginning September 15, points to a possible meeting between Chinese President Xi Jinping and Prime Minister Narendra Modi for the first time in almost three years.

These developments should be viewed in the new global context following Russia’s invasion of Ukraine. India has refused to join the West’s condemnation of Russian President Vladimir Putin and stepped up its imports of Russian oil. It is simultaneously courting the West. PM Modi recently underlined India’s relationship with the US as a “force for good” on the sidelines of the Quad summit in Tokyo, rightly seeking to carve out a neutral ground on the world stage. While China is deepening its ties with Russia, New Delhi has made a significant departure post-Galwan on the business and economic front with Beijing. India’s manoeuvres signal a change from the earlier practice of delinking business with China from its border disputes. Suspending the business-as-usual approach, India took conscious steps to limit Chinese investments, block Chinese firms from infra projects, disallow Chinese apps and chart a future course for limiting dependence on Chinese imports, as a form of leverage in military tussles. A little-known aspect of this strategy is the decision by the Centre to bar Chinese firms from all government procurement. The government has made statutory changes to ensure that foreign investments from countries that share land borders with India need prior approval of the Home Ministry. Central investigating agencies have since been raiding not just Chinese companies including Oppo, Vivo India, Xiaomi, Huawei but even Indian firms with Chinese exposure, such as Razorpay, Cashfree Payments, Paytm Payment Services et al for alleged violations of Prevention of Money Laundering Act (PMLA), 2002.

The strategy has clearly worked to neutralise Beijing’s stated objective of normalising trade relations while continuing with border build-up. It is unlikely that New Delhi will let up the pressure. However, it is unrealistic to assume that India’s dependence on Chinese exports, especially telecom/electronic products, motorcycle parts, photovoltaic cells, synthetic and artificial yarns for textiles and, most importantly, pharmaceutical ingredients or APIs will go down substantially in the near future. It is a tricky balance to pursue for the Centre. While in the long-term, PLI-led atmanirbharta is worth pursuing, in the immediate context China cannot be cut down to size as a trade partner. Strategic objectives need to factor in economic interests as the dialogue enters its next phase.

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