Economic statecraft is also an art. Use wisely

As India comes to terms with Chinese border aggression, New Delhi is working on a number of options across a range of domains in order to impose costs on Beijing for its misadventure. One particular sector which has been in the limelight is trade and economics. It is indeed ironical that this should be the case as one of the claims made by those supporting greater economic engagement has been that it induces greater cooperative behaviour between state actors. And for a relationship like India-China which has been fundamentally fractured since 1962, economic ties were viewed as the much needed balm which would reduce distrust. And today this very sector, for many Indians, should be the focal point of India’s expression of outrage vis-a-vis China. China’s mishandling of the coronavirus pandemic in its initial stages, resulting in global health crisis and the resultant economic distress had already generated a backlash worldwide against the Chinese Communist Party. Demands for a complete boycott of Chinese products that have risen in India from time to time in the past have only become stronger in recent months. Even before Indian and Chinese militaries started squaring off across the LAC, Prime Minister Narendra Modi was suggesting that the biggest lesson from the Covid-19 pandemic was the need to become self-reliant though New Delhi had been underlining that this call for Atmanirbhar Bharat was in no way a call for protectionism and was certainly not directed towards any other country including China. However, there has been a concerted attempt by India to reduce reliance on Chinese imports as well as investments in recent months. And after the border crisis erupted, it has been quite clear that all gloves are off and India will be considering all possible options on the table, including seriously limiting trade and commercial ties with China. In the last few days, Indian railways has terminated a Rs 470 crore contract to a Chinese firm for signaling works in UP that had been given to a Chinese firm and Bharat Sanchar Nigam (BSNL) and Mahanagar Telephone Nigam (MTNL) have been asked by the government not to use Chinese equipment for the upgradation of their 4G facilities. India has also gone ahead and banned 59 Chinese apps, including the popular TikTok, ShareIt and UC Browser, terming them “prejudicial to sovereignty, integrity and national security.” New Delhi is reportedly making a list of alterative suppliers of critical components which India can’t manufacture and can be used as substitutes for Chinese imports. The Confederation of All India Traders (CAIT) is calling for reducing imports from China to $13 billion by December 2021 from $70 billion in 2018-19. With China’s share in Indian’s total imports being around 11.8% and Indian exports to China barely 3%, India’s trade deficit with China has been a persistent problem. On the investment front, Chinese investment has been growing with around $4 billion investment in Indian start-up sector since 2015. New Delhi is reportedly making a list of alterative suppliers of critical components which India can’t manufacture and can be used as substitutes for Chinese imports A knee jerk disruption in trade ties will likely hurt Indian businesses and the Indian poor the most, especially at a time when the economy is beginning to re-adjust to the new normal of Covid-19. Even as India is trying its best to emerge as a global investment destination and global supply chains gets re-jigged, it will be some time before the sheer scale of China can be expected to be matched. New Delhi has been right to focus on developing its own manufacturing capacities but it is not going to happen in the short to medium term. It’s a long term sensible goal for Indian policy-makers to pursue but it won’t change the operational realities in the short term. A blanket ban on Chinese imports will not only derail the nascent recovery post Covid-19 but will also challenge Indian aspirations to emerge as a manufacturer of finished goods. It is precisely because of this that transport and MSME minister, Nitin Gadkari, is urging for a quick release of Chinese imports held up at Indian ports as this would severely impact Indian businesses. There is also the issue of India as a responsible global player. As a nation that has often argued that playing by the rules of the WTO is essential of global economic stability, any arbitrary trade behaviour on its part will jeopardise its diplomatic campaign to target China as the great disrupter. New Delhi, of course, can’t be prevented from cutting off economic ties with China if and when hostilities between the two escalate but that is likely to be a measure of last resort. In the short to medium term, therefore, a complete economic break with China is neither desirable nor necessary. Instead, New Delhi should use the threat of an escalated trade and economic conflict as a lever to continue to keep China on tenterhooks. In a relationship which is devoid of substantive leverage, every possible measure should be exploited with due consideration. Just as military confrontation has a logic of its own when it comes to escalation, an economic confrontation should not be presented as a fait accompli but as another step in a ladder which New Delhi should seem ready to climb. A complete economic break with China is neither desirable nor necessary. Instead, New Delhi should use the threat of an escalated trade and economic conflict as a lever to continue to keep China on tenterhooks There is no doubt that India has to reduce its economic dependence on China in the long term, but in the short to medium term a more sectoral walling off from China should be used to signal India’s seriousness of intent. With its recent actions, China has clearly signalled that it doesn’t value its economic ties with India. New Delhi’s response should not be driven by the immediacy of emotion but by the long term need of building its own economic sinews so that it can manage to sit at the core of the post-Covid-19 global economic order.

• Indian Foreign Policy
• China Foreign Policy
• Economic Diplomacy
• Developing and Emerging Economies
• China
• India
• CHINESE AGGRESSION
• Line of actual control
• SINO-INDIA

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