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Wednesday, September 23, 2020

Explained Ideas: How can India force China to settle the border issue amicably?

The size of the Indian market provides considerable leverage but using it would require India’s consumers as well as firms to pay higher prices for some time, write Meera Shankar and Ajay Shankar.

By: Explained Desk | New Delhi | Updated: September 3, 2020 9:35:57 am
China, china news, india china news, boycott china, galwan faceoff, india china border dispute, indian expressA poster of Chinese premier Xi Jinping is set ablaze in Ahmedabad in June 2020. (Express Photo: Javed Raja)

After the loss of lives of Indian soldiers at Galwan, there have been calls for the boycott of Chinese goods. Counter views have been expressed that the Indian economy is so dependent on China that the costs of taking steps to stop imports would be disproportionately higher for India as most manufacturing in India is dependent on global supply chains where China has a leading role.

“But this is a fatalistic view,” write Meera Shankar and Ajay Shankar, both retired bureaucrats belonging to the IFS and IAS respectively. “Our dependence can be reduced substantially if there is a national will and resolve to do so,” they state in their opinion piece in The Indian Express.

“The size of the Indian market and its potential in the coming years provides India considerable leverage; a leverage we should be willing to use fully. But to use this leverage, Indians, individual consumers as well as firms, have to accept that there would be a period of adjustment in which they would have to pay higher prices,” they write.

The bottom line that needs to become clear to China has to be that without a mutually satisfactory border settlement and a permanent end to these border incidents, it cannot be business as usual and the Indian market would start shrinking for them.

The Chinese have competitive advantage and are integral to global supply chains. But whatever they sell is, and can be, made elsewhere in the world. In fact, most of what we import from China was, is and can be made in India itself. With volumes and economies of scale, the cost of production in India would decline as it did in China.

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“The initial focus should be on items which are still being made in India and where imports from China have been increasing,” they state. If the RBI were to undo the real exchange rate appreciation, it would be equivalent to an increase in import duties of about 10 per cent.

Further, selective imposition of China-specific safeguard duties and use of non-tariff trade barriers should be enough in segments like electrical appliances to let Indian producers expand production and increase market share.

“The government should also facilitate the flow of finances for expansion and provide technical support for testing, improving quality and lowering costs of production,” they write.

Also read | Why India’s services sector needs urgent attention from the government

The authors, who were India’s Ambassador to the US and Secretary, Department of Industrial Policy and Promotion, respectively, go on to detail how the Chinese dependence can be countered in each sector.

“We should signal India’s firm resolve and willingness to bear the cost. China could choose to settle the border amicably and have full access to our market,” they conclude.

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