China Economics – India must avoid China blockade without due deliberation

China Economics China Economics    India must avoid China blockade without due deliberation

 

In the last few weeks, the border scene at Galwan in Ladakh has deteriorated quite rapidly. The casualties were the first such instance since 1975. As India plans an economic blockade of China, there are larger issues that need to be deliberated upon.

Yes, China needs India

One can argue that Indo-China annual trade at around $88 billion is quite small by what China does with countries like the US, EU and Japan. But that is off the point. The fact is that India runs a $70 billion trade deficit with China and thus constitutes a big chunk of the overall trade surplus of China. With the Sino-US trade already under pressure over the last two years, China needs Indian trade to grow. Despite the saber rattling, the reality is China cannot afford to lose out a trading partner like India. India offers a ready and lucrative consumer market.

India needs China too

For India, the trade with China is an important link in its supply chain. There are sectors like electronics, pharma and automobiles that rely heavily on China for supply of raw materials. Nearly twothirds of India’s supply of APIs for the pharma companies comes from China. We have already seen the disruption caused by chinks in the supply chain. With few countries able to match the heft and scale of China, Indian economy does need Chinese trade to flourish.

Don’t forget investments

Over the last few months, India has become a lot tougher in curbing the flow of any kind of FDI or FII flows from China. Interestingly, China does not rank among the top FDI sources into India but that may be misleading. It is estimated that a lot of flows that come from major countries like Mauritius and Singapore may actually be backed by Chinese companies. A similar estimate has also been put out for FPI flows and these can never be confirmed. But the bigger impact could be on the start-up ecosystem in India. Most of the big IT unicorns like Paytm, Swiggy, Snapdeal, Ola, Zomato and Hike have investments from China. It would be very difficult for the Indian government to wish away this start-up funding reality.

Time to talk and reason

Both India and China realize that two of the largest consumer markets cannot afford to be at loggerheads. The lesson from the prolonged trade war between the US and China has been that in any kind of economic tit-for-tat, there are no winners in the long run. The situation is a lot more pressing for India. Its fiscal deficit at above 5% and the prolonged lockdown has already put the economy under tremendous pressure. There are diplomatic solutions to such issues and grandstanding will not help. It is the time to build close ties with China, not to antagonize them economically! ©

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