India needs to reduce economic dependence on China, say experts

Many Indian experts acknowledge that decoupling will not be easy or likely to be fast.
Many Indian experts acknowledge that decoupling will not be easy or likely to be fast.PHOTO: AFP

NEW DELHI - India and China have dialled down tensions as their forces disengage along different points of the Line of Actual Control (LAC) in the Ladakh region.

But the process has been more complex in some areas than others and talks are continuing.

But the fallout from the violent clash between the two sides in the region on June 15 which left 20 Indian soldiers dead continues to reverberate in India with growing doubts about economic engagement with China.

Though an immediate boycott is seen to be impractical, experts say India should reduce its dependence on Chinese imports and push domestic manufacturing.

"I think it's clear, not just from the Indian experience but the world over, that it's not a good idea to remain locked into one country. Particularly if it's with a country with which you are going to have frequent border skirmishes. I don't think the border conflict is behind us," said Professor Biswajit Dhar, an economist at Jawaharlal Nehru University.

"I think it is important for India irrespective of what happened on the border to really focus on decoupling from China. You need to strengthen our manufacturing sector, kick-start the economy and create jobs. What is happening is that by depending on China, we are exporting jobs," he added.

China was India's largest trading partner in 2019 with trade reaching US$92.68 billion (S$132 billion), mostly in favour of China. India exports gems and jewellery, agricultural products and petrochemicals, while Chinese imports include electronics, pharmaceutical ingredients and toys.

The two countries successfully delinked border disputes from their economic relationship three decades ago but the latest clash have hit trade ties like never before.

India has banned 59 Chinese apps, including TikTok, on grounds of national security, announced that Chinese companies would not be allowed in highway projects and Chinese imports have been stuck for longer periods at ports and airports across the South Asian country.

Many Indian experts acknowledge that decoupling will not be easy or likely to be fast considering how cheap Chinese goods and investments have penetrated the market.

"You can't do it fast. It's a slow process. You have to give a signal to industry (on reducing imports from China). Government procurement has to be domestic which is the only way to encourage domestic interests," said Prof Sanjib Pohit at the National Council of Applied Economic Research.

 
 
 
 

Boosting local manufacturing has been an unsuccessful goal for successive Indian governments. In his first term, Prime Minister Narendra Modi rolled out a "Make in India" initiative. But manufacturing remains hemmed in by a range of issues from logistical problems, troublesome land acquisitions and high interest rates.

"Accelerated move to decouple in the short-term might result in supply disruptions and higher input costs, in midst of evolving domestic manufacturing capacities. Taking a long-term view to correct trade imbalances and promote the recent shift towards indigenisation, India is likely to focus efforts to lower reliance on manufacturing imports and vie to build capacity domestically," Ms Radhika Rao, an economist at DBS Group Research in Singapore.

Amid the economic rethink, the disengagement process has been moving at a slow pace.

On Thursday, Colonel Aman Anand, a spokesman for the Indian Army, said it was "intricate and requires constant verification".

Nationalist sentiment, in the meantime, has not abated in India.

The Delhi Hotels & Restaurant Owners Association, a group of around 1,300 Delhi hotels and restaurants, has said it would continue with a ban on providing hotel and guesthouse rooms to Chinese nationals.

"We will not give rooms to Chinese nationals. The disengagement process is not complete yet. If tensions rise, we will next ban use of Chinese products in our hotels," said its president, Mr Sandeep Khandelwal, who noted that so far no instance had come forward of Chinese nationals being turned away.