Although the border conflict with China has subsided somewhat, Indians remain concerned about being too economically dependent on a powerful China.
In 2020, Chinese and Indian soldiers clashed repeatedly along the disputed border, including a dispute in June in the Garhwan Valley that left both countries dead in the worst border clash since the 1960 war between the two sides.
In the months that followed, India took steps to reduce economic engagement with China, including censoring Chinese investment in India and banning hundreds of Chinese apps from running there. Chinese companies were also restricted from participating in infrastructure projects in India and from supplying equipment to Indian telecom service providers.
With these actions, New Delhi hopes to show Beijing that India is trying to break away from its economic dependence on China and that the huge volume of trade deals will not prevent India from remaining wary of an assertive China.
The latest trade figures released show that India still has some way to go in reducing its economic dependence on China. But experts say dependence on China is expected to shift in the near future as New Delhi increases its independence and diversifies its trading partners.
India Increases Self-Reliance
China reclaims its position as India’s top trading partner in 2020. According to the Indian Ministry of Commerce, India’s bilateral trade with China is $77.7 billion and imports from China are $58.7 billion, more than India’s total purchases from the United States and the United Arab Emirates, India’s second and third largest trading partners, respectively.
Although India has pushed for a policy of economic self-reliance in the hope of reducing its dependence on Chinese goods, the specific figures show that India is still quite dependent on Chinese-made heavy machinery, telecommunications equipment and household appliances.
Amitendu Palit, an economist specializing in international trade and investment at the National University of Singapore, said the continued reliance on Chinese imports is due to a lack of domestic supply of these products, while imports from China are cheap and plentiful.
India’s trade relationship with China is too deep,” Palit told the Voice of America. There is a high dependence on China for a variety of basic imports used by India’s domestic industry.”
Tensions between the two countries have raised India’s resolve to strengthen its manufacturing capacity. The Indian government has expanded the Production Linked Incentive (PLI) program in Budget 2021 to provide financial incentives for more industries and products to attract the development of these technologies, build economies of scale and reduce dependence on key Chinese products.
In economist Palit’s view, India has enough industrial raw materials and labor to produce several items domestically, and the main challenge is to reduce domestic production costs. He expects the PLI program to take at least four to five years to bear fruit.
The main challenge is to bring down the cost of doing business in the country so that domestic producers are price competitive and do not have to rely on imports,” he said. If the current efforts to increase manufacturing capacity are combined with improved business conditions, then these policies should yield good results.”
For his part, Rick Rossow, an India expert at the think tank Center for International and Strategic Issues, said India’s central government has made progress in improving the manufacturing environment, but much of the real work must be done by India’s state governments.
Hard infrastructure, reliable electricity, sensible legal solutions, etc.-the states’ agenda is the next key area of action,” he told Voice of America. ‘Make in India’ has a much better chance of success if several large Indian states make a concerted effort to strengthen manufacturing.”
Diversifying partnerships
In recent years, India has also made efforts to diversify its trade partnerships. The new crown Epidemic had a negative impact on India’s trade with other countries, and China was one of the earlier countries to recover from the new crown epidemic, which helped it take an export advantage.
Ajay Sahai, director general of the Federation of Indian Export Organizations, told Voice of America, “The growth of India-China trade depends heavily on India’s exports to China, and India’s overall imports are likely to decline as the Indian government works to become self-reliant and find import substitution.”
He added that India’s dependence on China is actually an economic lever the former can use as well, “If the consumer is king, India definitely has the ability to influence political and strategic decisions.”
India is expected to increase trade with other economies as the new crown vaccination coverage increases and major global economies are likely to rebound in the second half of this year.
India is off to a serious start in trade talks for 2021, with a decision to enhance trade and investment partnerships with the UK and the prospect of free trade agreements worth a total of more than £100 billion. India is also seeking greater trade reciprocity with ASEAN, Japan and South Korea.
At the same Time, India is trying to strengthen its alliance with the United States. Indian Foreign Minister Harsh Vardhan Shringla said last week that his government was trying to work out the details of a new proposal with the Biden administration to make the supply chain in the Indo-Pacific region more resilient.
They (Modi and Biden) have had a good series of conversations,” he said. So we have a sense of the priorities of the new U.S. administration. The Biden Administration has introduced new elements like climate change and technology. There are a range of areas where we can work together.”
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