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Why Is It Hard For India To Replace Resources From China?

JNU professor Biswajit Dhar explains how India can reduce its dependence on China and if 'Boycott China' will have any impact on the country's economy.
A protester holds up a poster as a group calls for boycott of Chinese manufactured products at Laxmi Nagar on June 18, 2020 in New Delhi, India.
A protester holds up a poster as a group calls for boycott of Chinese manufactured products at Laxmi Nagar on June 18, 2020 in New Delhi, India.

There has been a clamour in India to boycott Chinese goods and services ever since reports started trickling in about the stand-off between Indian and Chinese troops in Ladakh. These calls have been getting shriller since the violent face-off with the People’s Liberation Army on 15 June that killed 20 Indian soldiers.

While commentators have pointed out that a complete boycott of Chinese goods is easier said than done for India, the central government and some state governments have decided to pause some projects with Chinese companies. Maharashtra put on hold three agreements with Chinese companies last month, with industry minister Subhash Desai saying the decision was taken in consultation with the Union government.

Union Minister Nitin Gadkari also said last week that India won’t permit Chinese companies to participate in highway projects, including joint ventures which have Chinese partners.

Biswajit Dhar, a professor of economics at Jawaharlal Nehru University, told HuffPost India in an interview that these decisions will badly affect infrastructure projects in India.

“We will need to find new partners quickly to replace the Chinese, and Western countries don’t have the resources we need,” he said over the phone, pointing out that the capital coming from China cannot be replaced by any other country at least in the short run.

A government move that got a lot of international attention was India’s decision to ban 59 Chinese apps, including the popular TikTok, which left millions of users bereft.

Union Minister Ravi Shankar Prasad has said that this is a “great opportunity for goods and apps made by Indians”. But Dhar, who was earlier Director General at the New Delhi-based Research and Information System for Developing Countries, said that while Chinese companies will lose some market share because of this ban, there won’t be a major impact.

The only way to reduce India’s dependence on China, he said, is to ramp up domestic manufacturing.

Edited excerpts from the interview:

1. Will the Ladakh face-off have any short-term or long-term impact on trade relations between India and China?

India’s dependence on China is quite considerable and for a wide range of products — consumer and capital goods. This means that weaning ourselves off China is not going to be easy. If we try to hurry this process, there will be problems. In sectors like electronics, discoms and pharmaceuticals, we import items from China. Blocking imports or trying to boycott all Chinese products will come at a considerable price.

2. If there is a disruption in Chinese investment in India, which sectors are most likely to be impacted?

China was putting in a lot of money in the infrastructure sector and there’s also Chinese private equity in start-ups. Majority of the start-ups and e-commerce firms are dependent on Chinese capital. If we start regulating Chinese investment too much, these sectors will have to pay a price. Uncertainty in these sectors will add to unemployment because young people have moved to online platforms and their future could be at stake.

3. Which other countries can India turn to for investment? Can private players fill the void if Chinese investment is barred?

Chinese have deep pockets and they have been able to invest in areas where other countries haven’t been willing to come in. Today, most of the Western countries have crashed. In the last two-and-a-half decades, we have seen an episode of huge economic crisis and there has been a downturn in the FDI and other flows of capital.

I don’t think the capital coming from China can be replaced by any other country in the short run. Other countries don’t have the wherewithal and they are trying to revive their own economies.

4. In the long run, what can India do to reduce its dependence on China?

India will have to ramp up its domestic manufacturing. We have taken several initiatives in the past — including Make in India — but none of these initiatives have yielded any results. I think it’s very important for the government to create the right incentives so that investors (domestic entrepreneurs) can come in and rejuvenate the manufacturing sector.

The area of pharmaceuticals requires heavy investment and involves an element of risk. In the past, private players have not been very forthcoming. The government will have to take the initiative in Active Pharmaceutical Ingredients (API). Some public sector units were involved in the past, but they weren’t run efficiently. The government needs to find ways of running the public sector units efficiently. The only way we can reduce our import dependence on China in pharmaceuticals is to ramp up domestic manufacturing with significant input coming from public sector. Private players won’t come easily because of the risk factor.

5. Will ‘Boycott China’ have any impact on China’s economy?

I don’t think it will make much of a difference. India’s share in China’s exports is just about 3%. In China, there is a very strong link between the industry and the government and the government has been giving incentives to the manufacturing sector to help it expand. It supports the industry in times of crisis. I don’t think there will be much impact on China.

6. Do you think the ban on 59 Chinese apps will have any economic effect?

None of these apps have any economic significance.

7. Will it have an impact on China?

Chinese companies will lose some market. But those companies won’t go down because of India’s ban. Apps like TikTok have a global reach. I don’t think they will be impacted much.

8. Maharashtra has put on hold three projects signed with Chinese companies. The Yogi Adityanath government has banned installation of China-made electricity meters. The government also changed FDI rules last month. How will these decisions affect India’s already weak economic situation?

This is what I have been wondering. Chinese companies have invested into infrastructure projects and we need to upgrade infrastructure urgently. It seems like we have to find new partners quickly to replace the Chinese. And as I said earlier, the Western countries don’t have the resources we need. It will be very difficult, especially after Covid-19, to replace China.

At the end of the day, infrastructure projects suffer. Because of poor infrastructure, investors will also not be enthused to the extent we need them to be. It might set in a vicious cycle for us.

9. Do you think the recent government decision to mention the country of origin of products on the GeM is aimed at controlling Chinese products?

The aim is to identify Chinese products so that the consumers can stop using them. The issue now is e-commerce firms trade in a whole range of Chinese products so eventually these companies will suffer.

I am not very sure how it will impact the Chinese.

10. India’s trade deficit with China was about $48.5 billion in FY20. How can India close this huge gap?

We need to reduce imports. The moment we start reducing our import dependence on China, the trade deficit will come down. I am assuming we won’t be very enthusiastic in exporting to China so the only way to bridge the gap is to cut down on imports. This is only possible if we start producing domestically.

11. What retaliatory actions could China take and how will it impact India?

An outright ban on Chinese products will certainly invite retaliatory action. They may take us to the World Trade Organisation (WTO). Then we have to see how India responds. Banning the products will certainly be a violation under the WTO.

12. If China decides to redirect its investments to other countries, what will be the impact on India when the economy is already struggling?

That’s what I am concerned about. China is not investing much in manufacturing right now. They have been putting their money in infrastructure and start-ups. These two areas will definitely suffer.

China is very clear that it won’t make any long-term investment in Indian economy because of border skirmishes. There’s a flare up between the two countries every two-three years; we had Doklam in 2017. They have very short-term goals. This is the business model the Chinese have adopted: no long-term investment.

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This article exists as part of the online archive for HuffPost India, which closed in 2020. Some features are no longer enabled. If you have questions or concerns about this article, please contact indiasupport@huffpost.com.