Since Chinese troops killed 20 Indian soldiers in a border fight in the Himalayas on June 15, Indians have found eye-catching ways to show their outrage. Traders at a busy retail market in Hyderabad stomped on Chinese-made mosquito bats and residents of a middle-class apartment in Gujarat tossed a Chinese flatscreen televisions out the window.
The displays were a reminder that even amid tensions along their disputed 3,488km border, the nuclear-armed neighbours are deeply enmeshed economically, with Chinese companies having established a strong foothold in India’s consumer market.
In the aftermath of the bloodshed, prime minister Narendra Modi’s government is reconsidering its economic relationship with China. With little appetite for a military showdown, New Delhi wants to hit its more powerful neighbour where it thinks it can hurt — its coffers — by limiting Chinese companies’ access to the Indian market.
Though New Delhi has yet to make any pronouncements, there are signs that the economic war has begun. Customs officials have been slow-rolling clearance of Chinese imports, particularly those deemed “non-essential”. New Delhi on Monday banned 59 Chinese apps, including TikTok. It is considering higher import tariffs and tougher quality standards to discourage imports from China, officials said.
Talk of boycotting Chinese goods give Indian policymakers and citizens the feeling that they can strike back at a stronger neighbour. In reality, any attempt to inflict quick economic pain on China will hurt Indians themselves, economists warn.
India depends on China for a wide range of important items, from antibiotics and raw materials for its pharmaceutical industry to solar panels for its renewable energy drive to key components for the low-cost smartphones. Even India’s automotive industry depends heavily on some Chinese parts.
“India can’t just decouple itself from China — it’s not possible,” says Biswajit Dhar, an economics professor at New Delhi’s Jawaharlal Nehru University. “In a market economy, how can you tell the consumer ‘don’t buy these cheap products from China. Buy these expensive things coming from India — even if the quality isn’t good’?”
Well before this summer’s border stand-off, New Delhi was uneasy at its yawning trade deficit with its neighbour. As India’s economy expanded, its imports from China had soared, hitting $76bn in the 2017-2018 financial year. It exports failed to keep pace, leading to a $63bn bilateral trade deficit that year.
Increased import duties have since helped reduce India’s imports from China to $65bn, and pared the bilateral trade deficit to $48.7bn. But in April, Mr Modi unveiled a new vision of a “self-reliant India”, urging consumers to buy more local goods. New Delhi also announced stricter regulation of Chinese investment into Indian companies.
Yet any sudden reactions to obstruct or block Chinese imports in retaliation for the hostilities on the border risk backfiring, economists and business groups say. The India Cellular and Electronics Association has warned the move would disrupt manufacturing industries still reeling from the recent lockdown and create market shortages of critical products.
At best, Mr Dhar said, New Delhi could draw up a “medium-term” strategy to replace Chinese imports gradually with domestic alternatives, focusing on items of the greatest strategic and financial value such as pharmaceuticals and electronics equipment.
“You can’t afford to go all out into an import substitution mode — you don’t have the financial resources nor the technology,” he said. “We’ve got to be very strategic in terms of deciding which sectors we want to ramp up production. You can’t afford to think of boycotting everything all at once.”
If New Delhi does take more sweeping action, Indian consumers will pay the price with fewer, more expensive products for the foreseeable future. But reports that China is undertaking a mass military build-up along the disputed border will help rally people behind such measures.
“There is a lot of public support for policies that will punish China,” Gautam Bambawale, a former Indian ambassador to China, told a recent webinar. “India will also feel some of the economic pain. But we will just have to bear with it.”
Source: Economy - ft.com
