By Ameeta Verma Duggal
The Galwan Valley incident last week is a severe blow to the bilateral relationship with China. Indisputably, such intrusions cannot be tolerated and India must send out a strong message of zero-tolerance.
The incident has also stirred unprecedented popular anger against China. There have been widespread calls for boycotting Chinese products. The government has also strongly reacted by deciding to consider further restrictions on investments from China.
All this when India is still grappling to come to terms with the post-Covid-19 disruption caused to its global supply chains and industries are yet to get a foothold. So, what currently are India’s viable economic options?
Can (or should) India retaliate by blocking investments and imports coming from China?
According to patriotic sentiments as expressed by the Confederation of All India Traders (CAIT), India must escalate the #BoycottChina movement. This resonates with the mantra of #AatmanirbharBharat or a self-reliant India.
There is no doubt that India indeed needs to be self-reliant; needs to cut down its reliance on imports, particularly from China; needs to increase its exports to the global markets; and needs to assume its role as a disruptor in the global supply chains by replacing China.
This, however, cannot be an emotional call but must be on the basis of a pragmatic and well-defined blueprint which sets out a considered trajectory to make India a manufacturing hub with technological innovations and an unparalleled R&D setup.
India cannot replace Chinese imports overnight nor even in a year or two. The self-reliance that India aspires to can only be achieved over the next decade, starting now. A knee jerk #BoycottChina reaction is unlikely to wield desirable results for India’s economy at this juncture when it is slowly resurfacing from the havoc wreaked by Covid-19.
In the absence of readily available substitutes in our manufacturing ecosystem, India is likely to cause more self-damage by choking its supply chain. It is also unlikely to make much of a dent in the China economy when India’s share of the total China exports is less than 3 percent.
India has already imposed restrictions on receiving Foreign Direct Investment (FDI) from China with the April amendment in the FDI Policy providing that any investment from (i) an entity of a country sharing land border with India; or (ii) where the 'beneficial owner' of an investment into India is situated; or (iii) is a citizen of any such country was made subject to the government route.
The amendment was introduced to curb opportunistic takeovers or acquisitions of Indian companies due to the pandemic and was evidently targeted at China. Amidst the increasing tension with China, the government is also set to now consider regulating investments from China through the Foreign Portfolio Investment (FPI) route. Hence, going forward practically all investments from China would necessarily be subject to the Government nod.
What then are India's economic options?
Consider the following, not necessarily in a sequential order:
- Formulate enabling policies around #AatmanirbharBharat, #MakeinIndia, #AssembleinIndia, #EaseofDoingBusiness and so on. Government must deliver an enabling ecosystem where traders can return to manufacturing. Before India can contemplate boycotting imports from China in particular and the world at large, it is imperative that it focuses on building capabilities though enhanced competition, develop cutting-edge technologies and imbibe global best practices. Only then can #BuyLocalBeGlobal become a success story for India
- Use the newly introduced restrictions in the FDI Policy qua China judiciously and dispassionately bearing in mind the exigencies of investment. A contrary perspective is bound to adversely impact India more than the other way round
- Reduce India’s reliance on China in sectors like pharmaceuticals, medical devices, solar components, textiles etc., albeit not through imposition of tariff barriers but by increasing domestic competencies
- Shed the extant policy of protectionism as it thwarts competitiveness and only results in complacency. Sectors like chemicals, heavy industries, petrochemicals, steel and iron products, and capital machinery must be encouraged to become competitive and cost-effective instead of being reliant on tariff and non-tariff barriers. India must develop the potential to engage with the global suppliers
- Act within the contours of the World Trade Organisation (WTO) regime while dealing with China, particularly when India has been publicly voicing its support for the world trade body in the wake of US negating its authority to the extent of crippling the functioning of the WTO Appellate Body by blocking appointments to the Appellate Body
- India needs to maximize its export capacity, and aggressively boost export-driven industries. The government should be in a position to use foreign capital generated from exports for upskilling, technological upgradation and capacity building
- Bring in land acquisition and labour law reforms to help make India more competitive
- While India is preparing to achieve the above, it can possibly stop imports of Chinese-made consumer durables with immediate effect; regulate FDI from China in strategic sectors/activities; impose non-tariff barriers for products where quality is suspect
It is imperative that we realise that the #BoycottChina movement is not only about China but also about India - its willingness and readiness to seize the opportunities being presented by successive challenges like Covid-19 and Galwan Valley.
Globally, there is an existing need to identify multiple supply sources and India has the potential of fulfilling that need with its young workforce and a dominant domestic consumer base. Let Galwan Valley be the catalyst in making India emerge as a self-reliant economy competing with the established markets.
(Ameeta Verma Duggal is the co-author of Export Controls in India – Law & Procedures and the founder partner of DGS Associates, a New Delhi-based law firm that offers legal services to corporates in the areas of trade, export controls, civil aviation, telecom, litigation and arbitration. Ameeta heads the Trade Laws Practice of the firm)
For full coverage of the India-China border tension, click here
