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| Challenges ahead of India-China trade relations | | |
Dr. Rajkumar Singh
From recent past the over all India -China relations have been passing through a tense situation on and around the border between the two countries and especially because in a clash both sides have lost the life of their brave armies. Although both had established their diplomatic relations in the year 1950 and India was the first country to recognise the People’s Republic of China, however, the developments of later years culminated in India -China border war of 1962, followed by a long delinking of their diplomatic relations. In between their up and down in politico - diplomatic relations, their history of economic relations also dates back to the ancient times when it was done through the Silk Road. The said road, in addition, also served the purpose of spreading Buddhism in several East Asian countries. In post-1962 period their relations resumed in 1980 in diplomatic and economic spheres, which opened a fresh chapter in India - China relations.
Background of India -China economic relations
The year 2008 opened a new horizon of multi-layered relations between India and China because the Peoples’ Republic of China became India’s largest trading partner and this factor pave the way for military and strategic relations. These apart, India and China also began to co-operate o issues of common global interests like international trade, climate change and reforms on global financial order. Despite the fact that border dispute between the two remained a hot issue, bilateral trade between India and China touched 89.6 billion US dollar in 2017-18 with the trade deficit increased to 62.9 billion dollars in China’s favour. The volume of trade between the two was 84.5 billion US dollars in 2017 except India’s trade with Hong Kong which stands another at 34 billion US dollars. At the time Narendra Damodardas Modi became the prime Minister of India in 2014 Chinese imports from India amounted to 16.4 billion US dollars or 0.8% of its overall imports, and 4.2% of India’s overall exports in 2014. In the same year Chinese exports to India amounted to 58.4 billion US dollar or 2.3% of its overall exports, and 12.6% of India’s overall imports.
In the context, several ominous developments took place in India – China relations in the year 2020. It started on10 May 2020 in Nathu La, Sikkim, in which 11 soldiers were injured. Further this incident extended tension in Ladakh where Chinese side had built up several troop locations. In a more expanded clash on the night of 15/16 June 2020, in a deadly clash 20 Indian and 43 soldiers of Peoples’ Liberation Army lost their lives. It brought the armies of the two countries face to face and extended a long dark shadow on India – China bilateral trade relations. In an important decision on 29 June 2020 the Government of India banned 59 widely used Chinese mobile phone and desktop applications in response to rising tensions between the two countries. In addition, there was also a strong appeal to use home-grown products and boycott the Chinese goods as much as possible. The developments gave a jerk to the frequent use of Chinese goods as well as its shipments.
Large scale effects of current tension
As a result of these all there’s a problem brewing at the ports. Imports from China have started piling up as officials started withholding consignments at their facilities. In fact, DHL and FedEx have decided to temporarily suspend India bound Chinese shipments after backlogs started flooding their warehouses. But surprisingly no one seems to know why this is happening. Officials from the departments of commerce and revenue say no orders have been issued on this front. There aren’t any explicit diktats on restricting or physically inspecting Chinese imports. They added — “If in certain cases, some containers are held up, then it may be based on specific intelligence inputs about suspected materials, etc, and on risk assessment, which is a routine exercise.” But clearly, this isn’t routine. Especially considering there have been several indications that officials have been planning to retaliate against China — economically, of course. But why wouldn’t they push this message through official channels? After all, it would be a lot more effective to pursue this agenda through policymaking, right? Well, there’s a tiny problem with that. Taking an official stance is risky. It could attract the wrath of the World Trade Organization and trade unions, or cause China to retaliate. It’s easier to discourage importers by simply delaying approvals. If you don’t clear consignments, there’s more incentive for manufacturers in India to source products locally or seek alternatives elsewhere. In fact, it’s a tactic China has used to great effect in the past — according to Indian exporters. Be that as it may, these delays definitely have the potential to hurt China. And some might contest that it’s eminently desirable considering Chinese aggression has been on the rise. However, trade walls hurt India as well. As the minister for Micro Small and Medium Enterprises Nitin Gadkari only recently stated — “stopping Chinese imports could result in huge losses for Indian businesses that placed orders before the border clashes even happened.”
Vastness and consequences ahead
China makes up for a huge chunk of India’s imports — around 14% between April 2019 and February 2020. According to the Confederation of Indian Industry, China supplies 45% of our total electronics imports, almost 40% of the country’s organic chemicals, over 30% of local machinery and ~25% of our automotive parts. So, any disruption on this front could have serious consequences for our supply chain. Consider the auto industry. Industry bodies SIAM and ACMA claim that delaying automobile consignments could lead to disruption in vehicle manufacturing across the country. ACMA President Deepak Jain said, “The automotive value chain is a highly complex, integrated and interdependent one; non-availability of even a single component can, in fact, lead to stoppage of the vehicle manufacturing lines.” And don’t even get us started on the pharmaceutical industry. India imports most of our raw materials (Active Pharmaceutical Ingredients) from China and this includes crucial medical equipment such as pulse oximeters and infrared thermometers — equipment that hospitals need to fight the COVID-19 pandemic. And switching to a different supplier, if that’s possible will inevitably increase costs across the board. And while some people might gladly be willing to pay this price, we have to remember that roughly 22% of this country still lives below the poverty line. Not all of us can pay up. Nonetheless, after repeated lobbying from industry groups across the board, officials finally seem to be relenting. 3 days ago, Indian Customs started the process of clearing Chinese shipments that were stuck at ports for the last ten days. A government official even added that the consignments were being cleared without complete physical checking. Meaning, they want to expedite this process as quickly as possible. And that’s a good sign. So perhaps the only takeaway from this story is this — In being overzealous in our bid to hurt China economically, policymakers must make sure that the collateral damaged is limited. Or it will yield no material benefit to anyone. |
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