Context: With escalating India - China border tensions around LAC in Ladakh region, our country is all set to put China on the backfoot through economic measures.
Curtailing Chinese Trade and Investment in India:
- India has banned 59 apps most which are owned by Chinese companies and would cost loss to the tune of billions of dollars.
- As per recent notification by the Road Transport Ministry, Chinese companies would not be able to participate in road construction projects.
- Enhanced scrutiny is being conducted on Chinese companies owing to security concerns, in order to keep that out of critical sectors. Eg- Huawei company is kept out of 5G trials due to this.
- Amidst all this Boycott China products campaign is becoming more and more rampant.
- The above moves might not be very effective as China is way less dependent on Indian imports than India is on Chinese imports.
- In 2019-20, India’s imports from China accounted for $65 billion out of two-way trade of $82 billion.
- India relies on China for crucial imports for many of its industries, from auto components to active pharmaceutical ingredients (APIs).
- Between 70 and 90% of APIs, needed for the pharma industry, come from China.
- On the flip side China’s exports to India account for less than 3% of its overall exports.
- Domestic Production could be hurt in the short run especially the ones dependent on cheap chinese imports.
- Further China is accusing India of violating international trade norms and spirit of market competition.
- Chinese economy is 5 times bigger than India and hence a better position to sustain such restrictions.
- India will also lose some revenue if China starts reducing imports from India.
- India is dependent on Chinese Investment for promoting its startups who have taken significant funding from Chinese companies.
- Chinese investment in Indian tech start-ups has crossed $4 billion, spanning major investments in companies including Paytm, Swiggy, Ola and Flipkart.
- The move doesn’t violate international norms as China has often deployed economic countermeasures, from restricting market access to boycotting goods in the midst of its own disputes with countries ranging from South Korea (Terminal High Altitude Area Defense (THAAD) installation) and Japan ( East China Sea Dispute).
- Chinese restrictions were relaxed only after Seoul issued a notification clarifying that it would not extend the scope of THAAD.
- The message is clear that normal trade can’t be carried on until China agrees to return to the status quo of April before its incursions along the LAC began.
- India’s strategy will work or not depending on how important India is for Chinese Trade and investment. If the territorial gains at the border are less advantageous than market gains from India, only then we can expect a retraction of troops owing to economic restrictions.
Image Source: Tribune