Economic policy

India needs a coherent economic policy framework to deal with China

Of course, Cong Je, editor of the Global Times, author of this article, should not be considered the voice of the Chinese administration. But China often uses its public media to convey in undiplomatic language what it really means, and also to float test threat balloons.

Cong’s rant came after tax raids in India against Chinese telecoms maker, Xiaomi, and telecoms equipment supplier, ZTE, earlier. It would be interesting to see what Chinese state media make of the latest round of raids by Indian authorities on Monday. This time, the law enforcement branch raided the Chinese phone maker, Vivo, in connection with an alleged money laundering case. Vivo had already been raided by the income tax department last year.

The raids came just a day after another major Chinese exit from India was announced: Chinese automaker Great Wall Motor’s proposed $1 billion investment in India is the latest to breach the intransigent attitude of India after Galwan towards Chinese companies. Great Wall decided there was no need to wait any longer and closed shop in India after it failed to obtain the necessary regulatory clearances within the twice extended deadline set by its agreement with US automaker General Motors, GM, to buy its mothballed manufacturing plant in Talegaon, Pune. The GM plant was to form the manufacturing base for Great Wall in India. GM had closed its operations in India in 2017 and put the Talegaon plant on the block.

On paper, the exit of Great Wall does not change the scenario for the automotive sector in India in any measurable way. The Chinese automaker had just 11 employees in its Indian office, who have now been laid off. The potential $1 billion investment in capacity and market building was just that – potential. With all the major American, European, Japanese and Korean brands already present in India – not to mention the new resurgence of Tata Motors “Made in India” – one could also argue that the absence of Chinese brands does not affect the choices much. offered to the Indians. car buyers.

This may be true for the automotive consumer market, but any further breakdown in the increasingly strained relationship between the two Asian giants would spell disaster for manufacturers in several sectors of the economy, including automotive, which depends on China for many key components.

India is a huge importer of Chinese telecommunications products, computer hardware and peripherals, fertilizers, electronic components/instruments, project goods, organic chemicals, intermediate drugs, all types of consumer electronics, electrical machinery and all kinds of heavy engineering machinery and equipment.

In the first quarter of 2022, only the top four Chinese mobile phone brands – Xiaomi, Realme, Oppo and Vivo – held more than 64% market share and together accounted for more than two-thirds by value of the Indian mobile phone market. In the pharmaceutical sector, the generic drug trade in India is highly dependent on Chinese ingredients, as are many high-end drug formulations.

Apart from consumer products, China is also an important supplier to India’s key agricultural sector. It is a major exporter of fertilizers and crop chemicals to India. Syngenta, the world’s largest manufacturer of agrochemicals, which has a significant presence in India, is owned by ChemChina.

China may or may not be India’s biggest trading partner – the Commerce Department said in May that the United States had propelled China into second place with two-way trade of $119.42 billion in 2021 -22, compared to India-China bilateral trade of $115.42 billion, which has been disputed by the Chinese, who claim China-India bilateral trade amounted to $125.66 billion in 2021, making it India’s largest trading partner.

In fact, 2021 has been a banner year for India-China trade. Bilateral trade grew nearly 61% in the first half of 2021 as pent-up demand picked up after Covid restrictions eased. In the first quarter of 2022, bilateral trade has already increased by more than 15%. This is despite India banning more than 270 Chinese apps, denying clearance to more than $1.63 billion worth of investment proposals, and banning Chinese equipment from 5G trials in India.

With decoupling not much of a possibility in the foreseeable future, given China’s manufacturing prowess and key role in global supply chains – whatever the political rhetoric – India needs to calibrate its China policy in a more nuanced way, preserving its long-term economic interests. in mind. Policy certainty and consistency are important.

Banning Chinese apps when Chinese phones make up two-thirds of the market sends mixed signals and betrays a lack of policy coherence. It might have been interesting to explore, for example, whether allowing a Chinese automaker to set up shop in India would have encouraged other global rivals to invest more here. Raids are blunt instruments, which must be used wisely.

As India has joined the US-led Indo-Pacific Economic Framework, IPEF, translating the new multilateral engagement into results that will lead to a significant change in the trade imbalance between India and China is still far. The same goes for long overdue reforms that can unleash the “Make In India” potential so that the trade imbalance with China is corrected.

In the meantime, India really has no choice but to manage the increasingly complicated relationship with its difficult neighbor who is both a key economic trading partner and a serious threat to the country’s territorial integrity. The challenge for policymakers is to move beyond the inherent conflict between these two sets of realities to create a predictable and stable policy ecosystem for businesses and investors. It is an almost impossible task. But on which India cannot afford to be wrong.

Catch all the trade news, market news, breaking news and latest updates on Live Mint. Download the Mint News app to get daily market updates.

More less

To subscribe to Mint Bulletins

* Enter a valid email

* Thank you for subscribing to our newsletter.