NEW DELHI: In the beginning of May 2020, Chinese troops intruded along the disputed and un-demarcated Line of Actual Control (LAC) to unilaterally change the status quo which resulted in standoffs, fist fights and brawls between Indian and Chinese troops at different points along the LAC. On 15-16 June 2020, Indian and Chinese soldiers clashed in the Galwan Valley at approximately 16,000 feet above sea level. Twenty Indian soldiers and an unconfirmed number of Chinese soldiers died in the clash.
This led to an outcry in India and has increased anti-China sentiment. Angry citizens and trade associations called for decoupling from China and boycotting Chinese goods to impose an economic cost on China for its military belligerence across the LAC. Television channels, other media, Bollywood stars, sports icons and other famous personalities have also advocated eschewing Chinese imports.
The Modi government employed economic decoupling to express its anger at China’s military belligerence and as a tool to exert pressure on China to withdraw from the LAC. It has encouraged the substitution of Chinese products with Indian manufactured goods under the ‘Atmanirbhar Bharat Abhiyaan’, banned/restricted essential and non-essential imports from China, restricted Chinese investments in myriad sectors of the Indian economy such as petroleum, coal, power and telecom, banned more than 250 Chinese mobile Apps and cancelled contracts with Chinese companies.
The Modi government’s policy of economic decoupling has been a failure to a great extent. If it was an attempt to persuade China to restore the status quo ante at the LAC in Ladakh, this has not materialised. China has been unwilling to withdraw from Hot Springs near Kongka La and is also denying access to Indian troops beyond the Charding Nullah Junction in the Demchok sector and the Y-junction or bottleneck in Depsang plain in DBO sector. Moreover, a buffer zone in the Galwan Valley was created to prevent further clashes. The buffer zone in Gogra is also predominantly in Indian territory along the LAC. The withdrawal and disengagement in the Pangong Tso area, according to Lt General YK. Joshi (retd), former General Officer Commanding-in-Chief, Northern Command, China agreed to disengage because of India’s pre-emptive military action on 29–30 August 2020.
The Modi government needs to understand that trade and investment should not be linked to a border dispute and territorial/sovereignty and strategic issues should be tackled separately. For instance, in March 2012, China banned import of bananas from the Philippines after a flare-up in contested waters around Scarborough Shoal in order to pressure the Philippines to give up its claim, which Manila did not. In 2017, China blamed South Korea for allowing a U.S. defence missile system on the latter’s territory. China’s cracking down on Korean pop and soaps and banning screening of Korean movies, and even attacks by Chinese citizens on South Korean supermarket chain Lotte did not change South Korea’s decision to deploy the U.S. missile system. A trade war and/or economic decoupling are not going to resolve a border dispute. India should tackle trade with trade.
Second, if decoupling was to assuage public anger or to adhere to calls for decoupling from angry citizens, Bollywood actors, sportsmen and sportswomen and other famous personalities, this has more or less failed. China overtook the U.S. to become India’s largest trade partner in 2020–2021. India-China bilateral trade declined to $77.7 billion in 2020-2021 relative to $85 billion in 2019–2020 due to Covid-19. China became India’s largest trading partner in 2020–2021 despite the anti-China sentiment in India. In 2021–2022, bilateral trade reached $125.6. Chinese exports to India accounted for $97.5 billion and were 30 per cent higher than 2019. Indian exports to China also increased by 56 per cent to reach $28.1 billion. This illustrates that Indian citizen’s anger and the Modi government’s decoupling initiatives have been defeated by market forces.
Third, boycotting imports from China will not have a significant impact on China’s economy. This is because China’s exports to India account for three per cent of China’s global exports. On the other hand, any retaliatory measures from China will have a significant impact on the Indian economy because India’s exports to China account for nine per cent of India’s global exports and merchandise exports amount to 18 per cent. Similarly, restricting Chinese investments in different sectors of the Indian economy is not going to affect China. According to a study by the American Enterprise Institute, a U.S. think-tank, during 2005–2019, China has invested in excess of $2 trillion globally. However, it has invested approximately $37.4 billion in India which is 1.87 per cent of its global investments.
While some have argued that economic decoupling from China will be beneficial for the Indian economy, restricting investments from China is detrimental to the Indian economy and will hurt India more relative to China. Chinese investments can play an important role in enhancing economic growth in the post Covid-19 period. India needs an increase in trade and investment to stimulate economic growth and should welcome rather than ban investments from China. For instance, Xiaomi, a Chinese tech giant wants to establish new factories in India to not only manufacture 99 per cent of the smartphones and 100 per cent of TV sets it sells in India but also to make India a manufacturing hub for global exports. Xiaomi also wants to utilise the Indian government’s production-linked incentive scheme and source 75 per cent of the devices from local Indian manufactures thus creating jobs and contribute to the government’s ‘Atmanirbhar Bharat Abhiyaan’.
Investment from China, especially in the infrastructure sector, will stimulate the Indian economy. India desperately requires investment in its ageing and ailing infrastructure. Power shortages increase costs of production and decrease economic competitiveness. Similarly, inadequate transport infrastructure increases both time and cost of transporting raw materials and finished products. According to the Economic Survey of India 2020, to achieve a target of a $10 trillion economy by 2032, India needs to spend $200 billion annually to create resilient and robust infrastructure. New Delhi is aware that Beijing can improve the infrastructure which can lead to economic growth and development through backward and forward linkages. Improved infrastructure will reduce the cost of production, increase exports and enhance economic growth. It will also aid India in meeting its target of $1 trillion exports by 2025 (the target needs revision because of Covid-19 pandemic). Hence, economic decoupling from China will be self-defeating for India.
Economic decoupling from China is also not feasible in the short to medium term because China is deeply intertwined with the Indian economy. It will be expensive, and in some cases, impossible to replace China as a supplier in the value chain. In the last ten years, Chinese firms have become important players in major sectors of the Indian economy such as social media, pharmaceuticals, telecommunications, mobile phones, start-ups and other sectors. For instance, Chinese mobile firms account for 75 per cent share of the mobile handset market, almost one third share in the telecommunications sector and more than 75 per cent of the equipment in the power sector in India.
China is deeply entrenched in the value chains and supplies key raw materials and components for different sectors of the Indian economy. India’s auto-parts industry relies on China for 27 per cent of the intermediate products. Covid-19 pandemic led to disruptions in the supply of components from China which had a negative impact on the industry. India is one of the global leaders in the pharmaceutical industry. It produces 20 per cent of the generic drugs and 60 per cent of the vaccines globally which are exported to around 200 countries. A disruption of imports from China will have a disastrous impact on the $39 billion industry and negatively impact India’s exports. It will take around eight years for India to diversify imports and increase self-reliance if and only if reforms are undertaken and there is government support.
India’s policy of economic decoupling from China will not persuade Beijing to withdraw its troops from the friction points along the LAC and restore the status quo ante. Although the gamut of bilateral relations has suffered, the political cost of China’s military belligerence along the LAC has been inadequate. India along with like-minded countries should impose greater political and diplomatic costs on China to restore the status quo ante along the disputed border in Ladakh. It should be relentless in insisting on restoring the status quo ante. It should continue to build and strengthen border infrastructure and station troops in the disputed Ladakh region until status quo ante is restored along the LAC.
(The author is Associate Professor of International Relations and Foreign policy at Huaqiao University in Xiamen, China; also Adjunct Professor at Far Eastern University, Manila. Views expressed in this article are personal)
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