Opinion Against the China tide

For the US,its primacy is at stake. For India,not so,given that its economy is still just about a fourth of China’s and it will take decades to come anywhere close. But then,has New Delhi really spared a thought on how Beijing’s rising geopolitical clout will affect its security,industry and domestic job prospects? In the beginning of calendar 2011 — this year also marks 10 years of China’s accession to the WTO — the National Security Council of India had its first discussion on how to counter or,if I may venture,live with China’s economic prowess. This was followed up with a couple of meetings between various departments and ministries. Last month,the department of commerce presented a draft “action plan for China” in a inter-ministerial meeting chaired by the deputy national security advisor. The draft plan may have chinks,but at least it provides a starting point to arrive at a long-term strategy for pro-actively engaging China,given India’s own bargaining chips,even if they are only a few.

Today,India-China merchandise trade is of the order of $60 billion. India exports $20 billion worth goods and imports about $40 billion from China. Clearly,the trade is heavily skewed in favour of China which enjoys a $20 billion surplus. By 2017,given the growth up-tick in bilateral trade,this surplus is estimated to grow at least four times to $80 billion. It would be naïve to say the government did not see this coming. So why hasn’t there been any action? As a policy-maker explained: “Everybody in the government was aware of China,but the government was not.” That is to say,as it happens in a vibrant argumentative democracy,the knowledge acquired by Corporate India and individual departments in the government on the state of play in China was never really put together. Instead,they worked in silos,concerned with their own narrow interests and never agreed to a common set of long-term strategic objectives. And all this while,the tide from China continued to swamp India.

It’s time India expanded its geopolitical view with respect to China. So far,security has been the predominant concern,given the long borders the two countries share and the rival’s might. Naturally then,the focus has been on defence preparedness and infrastructure in border areas. But now New Delhi must also strategise on how it exploits its own natural resources and boosts its industry. These two issues impinge significantly on domestic politics,because both have the potential to generate large-scale employment that in the long run would raise incomes and reduce poverty.

Of course,there are differences on what is the right strategy for boosting domestic industry. One strong argument is to leave it to the market,or in other words,don’t do anything. The other view is to build temporary walls and give time to industry to build stronger boats so that the rising tide can be managed. Yet another view is to ask China to stop swamping us — something that sounds adversarial. The last view is best avoided — with an emerging giant or superpower that also shares a long border with you,it is only practical to opt for a collaborative approach. The first view of letting the market forces play is definitely fashionable. On the contrary,building walls will immediately sound protectionist. It will be couched as going backward in time,even regressive. But the cost of not strengthening domestic industry or manufacturing — given that it is getting more and more intricately linked with imports from China — will only make India increasingly vulnerable to every small supply shock across sectors. For instance,during the Beijing Olympics,to project a good image,China shut down its factories producing chemical intermediates. Indian pharmaceutical and chemical firms that depended largely on Chinese imports had to hunt for supplies from other regions,leading to a sharp rise in costs for almost six months. Till the 1990s,India was self-sufficient in penicillin,a bulk drug. Now,except for two to three units,much of it is imported from China.

Essentially,India needs to look at two aspects. One,where it is not competitive and is at the receiving end,how it can bring more competition. Being a WTO signatory itself,India cannot stop China from selling its wares,be it power and telecom equipment or organic chemicals. But it can certainly insist that China invest in the country on production facilities. Similarly,it can structure duties such that there is a deterrent to large-scale exports by China. Two,where India is competitive,it can create non-tariff barriers or make it difficult for Chinese companies to do business. At the political level too,strong negotiations can help Indian industry make inroads into the Chinese market. For example,China has a huge but opaque procurement programme,controlled largely by state-owned undertakings. Here,New Delhi must push its agenda such that these enterprises buy in bulk from Indian companies.

China may be moving towards a consumption-led growth strategy,but India’s big negotiating chip is its own big domestic market.

pv.iyer@expressindia.com