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GS Paper: GS3-12.Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth

  • Centre sets ‘standard’ for product Reviews on E-Commerce Platforms

    review

    The Centre is bringing out a standard for publishing product reviews for e-commerce platforms this week.

    What are the reviews on e-com platforms?

    • Reviews are the ratings given by customers who make any purchase on the e-commerce platform.
    • This is generally a star-rating system followed by user comments.
    • It is particularly a social proof given by people who make judgments and decisions based on the collective actions of others.

    Why do e-coms take such reviews?

    • Reviews are much more than just comments and can result in relevant content and information, both for you and your customers.
    • Since the biggest disadvantage of e-commerce is not offering the possibility for consumers to be face to face with the product, reviews can break this barrier.
    • Reviews can help sell more, gain new customers, accompany the consumer’s satisfaction, and target better.

    Why reviews matter?

    • Ensure a good purchasing experience;
    • Create surveys and debates on products and/or services;
    • Provide a field for comments and instigate interaction;
    • Know how to deal with complaints and try to resolve them.

    Why discuss this?

    • Consumer grievances ignored: More than one in two (58 per cent) consumers complain that their negative product ratings and reviews are not being published by e-commerce platforms.
    • Positive bias: Only 23 per cent consumers said that their negative reviews or ratings on e-commerce sites were published as it is.
    • Fake and deceptive reviews: Wasteful products are highly publicised with fake reviews and praises.

    What are the standards set out by the govt.?

    The framework for the standard was prepared by the Bureau of Indian Standards (BIS). It is titled IS 19000:2022.  The outlines are-

    • Guiding principle: The guiding principles of the standard are integrity, accuracy, privacy, security, transparency, accessibility and responsiveness.
    • Voluntary compliance: To start with voluntary, the standard could become mandatory after observing compliance to the standards by such platforms.
    • Grievance redressal: Once made mandatory, a consumer may submit grievances to the National Consumer Helpline, Consumer Commissions, or the CCPA, against misleading reviews.
    • Punishment: If made mandatory, the violation of the standard, can invite punishment for unfair trade practice or violation of consumer rights.
    • Review authentication: The standard prescribes specific responsibilities for the review author and the review administrator. For the review author, these include confirming acceptance of terms and conditions, providing contact information.
    • Consumer data protection: For review administrator, these include safeguarding personal information and training of staff.
    • Traceability and genuineness of the review author: The standard also provides for methods for verification of the review author through email address, identification by telephone call or SMS, confirming registration by clicking on a link, using captcha system.

    Significance of the standards

    • The standard is expected to benefit all stakeholders in the e-commerce ecosystem, that is, consumers, e-commerce platforms, sellers, etc.
    • It will help usher in confidence among consumers to purchase goods online and help them take better purchase decisions.

     

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  • Everything you need to know about ‘Friendshoring’

    friendshoring

    In her visit to India last week, US secretary of treasury Janet Yellen reiterated her country’s stance of pushing for “friendshoring” to diversify away from countries that present geopolitical risk.

    What is Friendshoring?

    • Friendshoring is a strategy where a country sources the raw materials, components and even manufactured goods from countries that share its values.
    • The dependence on the countries considered a “threat” to the stability of the supply chains is slowly reduced.
    • It is also called “allyshoring”.
    • Apple’s announcement to shift its iPhone manufacturing facilities from China to India.

    US push for friendshoring

    • In the current case, Yellen said that Russia has long presented itself as a reliable energy partner, but in the Ukraine war, Putin has weaponized the gas “against the people of Europe”.
    • Another country Yellen mentioned in her speech was China.
    • She said it currently controls over 80 per cent of global solar panel production.
    • However, there are reports that in parts of the country, like Xinjiang, the production of panels takes place through forced labour.

    Issues with friendshoring

    • Friendshoring may push the world towards a more isolated place for trade and reverse the gains of globalisation.
    • It is a part of the “deglobalisation” process.
    • While moving supply chains away from East Asia could increase security in the long run, an ill-conceived implementation of this friendshoring strategy could result in price hikes and a stronger China over time.

     

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  • National Investment and Infrastructure Fund (NIIF)

    Finance Minister has urged the National Investment and Infrastructure Fund (NIIF) to expand its operations and explore ways to crowd in private capital for projects under the National Infrastructure Pipeline, PM Gati Shakti and National Infrastructure Corridor.

    What is NIIF?

    • National Investment and Infrastructure Fund (NIIF) is India’s first infrastructure specific investment fund or a sovereign wealth fund that was set up in February 2015.
    • The objective behind creating this fund was to maximize economic impact mainly through infrastructure investment in commercially viable projects, both Greenfield and Brownfield.
    • It was proposed to be established as an Alternative Investment Fund to provide long tenor capital for infrastructure projects with an inflow of ₹20,000 crore from the GoI.
    • It was registered with SEBI as Category II Alternative Investment Fund.

    Types of funds in NIIF

    • NIIF manages three funds: Master Fund, Fund of Funds and Strategic Fund.
    • The funds were set up to make investments in India by raising capital from domestic and international institutional investors.
    1. Master Fund: It is an infrastructure fund with the objective of primarily investing in operating assets in the core infrastructure sectors such as roads, ports, airports, power etc.
    2. Fund of Funds: The Fund of Funds anchor and/or invest in funds managed by fund managers who have good track records in infrastructure and associated sectors in India. Some of the sectors of focus include Green Infrastructure, Mid-Income & Affordable Housing, Infrastructure services and allied sectors.
    3. Strategic Opportunities Fund: It is registered as an Alternative Investment Fund II under SEBI in India. Its objective is to invest largely in equity and equity-linked instruments. It has been established to provide long-term capital to strategic and growth oriented sectors in the country with the aim to build domestic leaders.

    Functions of NIIF

    The functions of NIIF are as follows:

    1. Fund raising through suitable instruments including off-shore credit enhanced bonds, and attracting anchor investors to participate as partners in NIIF;
    2. Servicing of the investors of NIIF.
    3. Considering and approving candidate companies/institutions/ projects (including state entities) for investments and periodic monitoring of investments.
    4. Investing in the corpus created by Asset Management Companies (AMCs) for investing in private equity.
    5. Preparing a shelf of infrastructure projects and providing advisory service

     

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  • BASIC nations oppose ‘Carbon Border Tax’

    carbon

    BASIC countries that includes India has jointly stated that carbon border taxes, that could result in market distortion and aggravate the trust deficit amongst parties, must be avoided.

    EU proposes, BASIC opposes

    • The European Union has proposed a policy — called the Carbon Border Adjustment Mechanism– to tax products such as cement and steel that are extremely carbon intensive, with effect from 2026.
    • BASIC, a group constituting Brazil, India, South Africa and China have opposed this move.
    • These are large economies that are significantly dependent on coal, has for several years voiced common concerns and reiterated their right to use fossil fuel.

    What is Carbon Pricing?

    • Carbon pricing is an approach to reducing carbon emissions that uses market mechanisms to pass the cost of emitting to emitters.
    • Its goal is to discourage the use of fossil fuels, address the causes of the climate crisis and meet national and international agreements.
    • Well-designed carbon pricing can change the behavior of consumers, businesses and investors while encouraging technological innovation and generating revenue that can be used productively.
    • There are a few carbon pricing instruments, such as a carbon tax and cap-and-trade programmes.

    What is Carbon Border Tax?

    • A carbon border tax (CBT) is a tax on carbon emissions attributed to imported goods that have not been carbon-taxed at source.
    • The carbon border tax proposal is part of the European Commission’s European Green Deal that endeavours to make Europe the first climate-neutral continent by 2050.

    Objective:

    • To ‘incentivize’ greener manufacturing around the world and create parity with European manufacturers who are already subjected to substantial carbon levies.

    A move to benefit local EU manufacturers

    The carbon border tax has wide appeal in Europe. It is supported by the new president of the European Commission.

    • A carbon border tax is able to protect a country’s local manufacturers, motivating them to adhere to green regulations.
    • Many EU companies are at a cost disadvantage as they have been paying a carbon border tax and for carbon emissions since 2005 under the EU’s Emissions Trading System.
    • The new carbon border tax can therefore lead to a more level playing field against importers, especially those from nations with more lax environmental standards.

    What could the new proposal mean politically?

    • Notably, China’s continuing reliance on non-renewable energy to power its economy leaves it particularly vulnerable in this matter.
    • For example, given that China produces steel with blast furnaces that release a large amount of carbon, it will have to pay an additional layer of carbon border tax, which will increase its costs and its market price.
    • This will consequently reduce the competitiveness of steel produced in China, compared to steel from other countries that is made in more carbon-efficient mills that do not have to pay this additional tax.

    This suggests that the carbon border tax is also politically preferable to Europe as it slows down the gradually rising economy in China, and would therefore preserve the European countries’ competitiveness.

    How does this impact India?

    • As India’s third largest trading partner, the EU accounted for €62.8 billion ($74.5 billion) worth of trade in goods in 2020, or 11.1% of India’s total global trade.
    • India’s exports to the EU were worth $41.36 billion in 2020-21, as per data from the commerce ministry.
    • The CBT would cover energy-intensive sectors such as cement, steel, aluminium, oil refinery, paper, glass, chemicals as well as the power sector.
    • By increasing the prices of Indian-made goods in the EU, this tax would make Indian goods less attractive for buyers and could shrink demand.
    • Sadly, India’s many ‘self-reliance’ tariffs are also a contributor to this.

    Issues with CBT

    • Impact on trade: The degree of impact on industrial sectors would be largely influenced by two factors: carbon intensity and trade intensity.
    • Altering competitiveness: For companies, it will raise the administrative burden of crossing borders and increase trade frictions, especially for small businesses. That will inevitably reduce choice and raise costs for consumers.
    • Promoting protectionism: The carbon tax may end up being protectionist, and will hit emerging economies like India hard.
    • Unfair practices under WTO: Depending on their design they could fall foul of WTO measures designed to prevent importing countries from discriminating against particular exporting countries.
    • A violation of Paris Accord: CBT compels developing countries to pay the same price as the developed countries to climate change. The EU is essentially bypassing the principle of ‘common but differentiated responsibilities’ that should guide international climate action.

    Way forward

    • Carbon taxing is just one way of holding large emitters accountable for their role in harming the environment.
    • However, fundamental changes can’t be forced by tariffs.
    • If the planet is to have any hope of meeting the Paris Agreement goals, drastic measures that consider both the economic and social wellbeing of nations’ inhabitants must be taken.
    • This should take all nations into confidence than imposing such overnight tariffs.
    • It is no doubt that India must be in the forefront in climate politics. But it must also be cautious about the negotiations in global laws to protect domestic interests.

     

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  • In news: Vostro Accounts

    vostro

    Russian banks have been permitted by the RBI to open special Vostro accounts to pave the way for rupee-based export-import transactions.

    Why such move?

    • Logged out of SWIFT -the messaging service to facilitate and confirm cross-border payments – most Russian banks are looking for alternative ways.
    • India and several other countries too want a way out so that trade can continue.
    • India and Russia are now exploring to directly trade in rupee-ruble.

    And this is where Nostro and Vostro may come into play.

    What is a Vostro Account?

    • A Vostro account is defined as an account that a correspondent bank holds on behalf of another bank.
    • Vostro is a Latin word that means “your”, therefore, a vostro account implies that it is “your account”.
    • An example of such an account would be HSBC vostro account is held by SBI in India.

    Understanding a Vostro Account

    • The banks are acting in a fiduciary relationship and they share a principal-agent relationship.
    • The correspondent foreign bank is a financial intermediary in the transactions that they are involved in.
    • The foreign bank acts as an agent that provides services such as executing wire transfers, performing foreign exchange, enabling deposits, enabling withdrawals, expediting international trade on behalf of the domestic bank.
    • It is most used in settlement of foreign exchanges or foreign trade.
    • No interest will be paid on the vostro account maintained, as per the directives that have been issued by the RBI in India.
    • An overdraft facility can only be availed if it is specifically sanctioned.

    Other related terms: Nostro and Loro Accounts

    • Vostro and Nostro accounts are often confused to be the same.
    • While in essence, it is the same account that is being spoken about, the perspective from which it is being seen matters.
    • In a vostro account, it is the correspondent foreign bank point of view, whereas in a nostro account, it is the point of view of the domestic bank.
    • Vostro accounts are maintained in the domestic currency whereas, nostro accounts in foreign currency.
    • A Loro account is a current account that is maintained by one domestic bank for another domestic bank in the form of a third party account, unlike nostro and vostro which is bilateral correspondence.

    Why is it used?

    • This account serves as an economic way for small domestic banks to access the financial resources and services of a larger foreign bank.
    • Enables one to offer international banking solutions to a customer without opening a bank branch in a foreign nation.
    • It minimizes the time for transfer of funds.
    • Closely monitored nostro accounts can be used for better reconciliation of statements.

     

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  • Make-II Route of Defence Procurement

    The Army has approved sanction orders for the development of niche technology by the Indian industry under the Make-II route of defence procurement.

    What are Make-Category Projects?

    • The provision of ‘Make’ category of capital acquisition in Defence Procurement Procedure (DPP) is a vital pillar for realising the vision behind the ‘Make in India’ initiative.
    • It aims to foster indigenous capabilities through design & development of required defence equipment/product/systems or upgrades/ sub-systems/components /parts by both public and private sector in a faster time frame.

    ‘Make’ Procedure has following two sub-categories:

    1. Make-I (Government Funded): Projects under ‘Make-I’ sub-category will involve Government funding of 90%, released in a phased manner and based on the progress of the scheme, as per terms agreed between MoD and the vendor.
    2. Make-II (Industry Funded): Projects under ‘Make-II’ category will involve prototype development of equipment/ system/ platform or their upgrades or their sub-systems/ sub-assembly/assemblies/ components. They aim primarily for import substitution/innovative solutions, for which no Government funding will be provided for prototype development purposes.

     

    Tap to read more about- Self Reliance in Defence

     

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  • Impact of the Covid-19 pandemic on global poverty

    poverty

    Context

    • A recent World Bank report, titled “Correcting Course”, captures the impact of the COVID-19 pandemic on global poverty. The economic mismanagement we were witness to in India resulted in 5.6 crore people slipping into extreme poverty in 2020.

    Do You Know?

    • 17 October is observed as International Day for the Eradication of Poverty
    • The theme for International Day for the Eradication of Poverty 2022-2023 is “Dignity For All in Practice: The commitments we make together for social justice, peace, and the planet”

    What is the Impact of COVID-19?

    • Rapid rise in extreme poverty: The number of people living in extreme poverty rose by seven crores million in 2020, as the global poverty rate rose from 8.4% in 2019 to 9.3%in 2020.
    • Increased Inequality: This is the first time in two decades that the poverty rate has gone up. Global inequalities have widened, evident in the relative impacts felt on incomes in the richest countries as opposed to the poorest; and, unsurprisingly, economic recovery has been similarly uneven.

    poverty

    What the World Bank report says on fiscal policy of developing Nations?

    • The report focuses on fiscal policy as an instrument for governments in dealing with crises such as the pandemic.
    • Poorer countries were unable to use fiscal policy as effectively and thus unable to offset the impact of the pandemic to a much lesser degree than richer countries.

    What is the status of India’s Fiscal Policy and Poverty?

    • Sluggish state of Indian Economy: India’s economy continues to be sluggish in 2022, and one should look back at the policy choices that were made back in 2020.
    • Absence of official poverty data: The World Bank report relies on the Consumer Pyramids Household Survey (CPHS) by the Centre for Monitoring Indian Economy (CMIE), in the absence of official poverty data since 2011.
    • Poverty and fall in GDP: By the estimate, 5.6 crore people are likely to have slipped into poverty as India’s GDP fell by7.5% in FY2020-21.
    • India’s Population below poverty line: The population below poverty line in India stood at 10% in 2020.
    • Marginal Incremental spending: Refusal to provide a fiscal stimulus to consumption the Government announced a fiscal stimulus worth Rs.2 lakh crore, or 1% of GDP. However, only a small fraction therein reflected incremental spending.
    • Inadequate increase in MGNREGA wage: The minor increase to the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) wage by Rs.20 per day was a long-pending correction and quite inadequate to say the least.
    • No money in the hands of households: The majority of India’s stimulus package took the form of credit lines and refinancing schemes to private enterprises, which are an inefficient mechanism to realise the goal of putting money in the hands of people to boost household-level consumption.

    poverty

    The relationship between India’s Tax policies and Poverty

    • Reduced corporate tax: Through the pandemic and beyond, India persisted with the reduced corporate tax rate that had been announced in September 2019. The reduction of corporate tax from 30% to 22% cost the exchequer Rs.1.84 lakh crore over the last two fiscal years, according to the Parliamentary Committee on Estimates.
    • Rise in corporate profit: India has refused to reintroduce wealth tax, or indeed, an inheritance tax. At the same time, corporate profits soared, as reported by the CMIE.
    • Rise in inequality: Through all of this, and in spite of the World Inequality Report terming India as a ‘poor and very unequal country’.
    • GST as regressive tax regime: India has repeatedly increased the rates on a wide range of products covered by the Goods and Services Tax as well as increased the prices of cooking and transport fuels. While indirect taxes may help prop up public finances, they place a disproportionate burden on the poor.

    Food aid through PMGKAY and the problem associated with it

    • Pradhan Mantri Garib Kalyan Ann Yojana: The announcement of 80-crore people in India would get food aid through the Pradhan Mantri Garib Kalyan Ann Yojana (PMGKAY), a scheme that continues mainly because of the undeniable household-level distress. PMGKAY is currently estimated to cost about Rs.3.90 lakh crore. Started in April 2020, it has been extended till the upcoming Assembly elections are over.
    • PMGKAY is not a long-term solution: food aid is not a long-term solution, and certainly does not solve the problem of chronic malnutrition.

    World Bank Suggested priorities for Post pandemic recovery

    • The World Bank report identifies three priorities for fiscal policy for governments to aid with post-pandemic recovery:

    1. Targeted subsidies that benefit the poor

    2. Public investment to build resilience in the long term;

    3. Revenue mobilisation that should rely on progressive direct taxation rather than indirect taxes

    poverty

    Conclusion

    • India’s fiscally prudent policies had ensured the wealthy state but poor people. However, we must not see India’s story in isolation. Despite the good fiscal packages developed country like UK, USA are heading towards recession. Though sluggish, India has done well to maintain positive growth trajectory but this positive growth must include the growth of the poor as well.

    Mains Question

    Q.How fiscal policy can impact the poverty? What are the government initiatives to uplift the poor?

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  • What are Gift Taxes?

    The Supreme Court recently ruled that shares within the lock-in period are not ‘quoted shares’, and thus they need to be valued as ‘unquoted shares’ to determine the gift tax liability.

    What are quoted and unquoted shares?

    • According to the Wealth Tax Act, ‘quoted share’ in relation to an equity share or a preference share means a share quoted on any recognised stock exchange with regularity from time to time.
    • The quotations of such shares are based on current transactions made in the ordinary course of business.
    • An ‘unquoted share’ is simply a share that is not a quoted share.
    • So according to the SC order, if the locked-in shares of the promoter falls in the ‘unquoted share’ category, their price treatment can’t be that of the ‘quoted shares’, and so gift tax will not be applicable.

    What are Gift Taxes?

    • Gift tax is a provision introduced by the Parliament of India in 1958.
    • It was introduced to impose tax on giving and receiving gifts under certain circumstances which is specified under the act.
    • These gifts can be in any form including cash, jewellery, property, shares, vehicle, etc.

    Gift Tax on Transfers

    • The gift tax is also applicable on certain transfers that is not considered as a gift.
    • The transfer of existing movable or immovable property in money or money’s worth qualifies for gift tax.

    Certain exemptions

    • Though gift tax is applicable on gifts whose value exceeds Rs.50,000, the gift is exempted from tax if it was given by a relative.
    • The income tax rule specifies who can be considered as a relative and the list is mentioned below.
    1. Parent
    2. Spouse
    3. Siblings
    4. Spouse’s siblings
    5. Lineal descendants
    6. Lineal descendants of the spouse

    Listed below are other situations in which the gift will be exempted from tax.

    1. Gifts received during weddings are usually exempted from tax.
    2. Gifts received as part of inheritance is exempted from tax.
    3. Cash or rewards received by local authorities or educational institutions on the basis of merit is exempted from tax.

     

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  • Competition panel penalizes Google

    The Competition Commission of India (CCI) has imposed a ₹1,337.76-crore penalty on Google for abusing its dominant position in multiple markets in the Android mobile device ecosystem.

    What did Google do?

    • Google had abused its dominance in the licensing of its operating system for smart mobile devices, app store market for Android smart mobiles among others.
    • The CCI examined various practices of Google with respect to its licensing and various proprietary mobile applications, including Play Store, Google Search, Google Chrome, YouTube, etc.

    About Competition Commission of India

    • CCI is the competition regulator in India.
    • It is a statutory body responsible for enforcing The Competition Act, 2002 and promoting competition throughout India and preventing activities that have an appreciable adverse effect on competition in India.
    • It was established on 14 October 2003. It became fully functional in May 2009.

    Its establishment

    • A need was felt to promote competition and private enterprise especially in the light of 1991 Indian economic liberalization.
    • The idea of CCI was conceived and introduced in the form of The Competition Act, 2002 by the Vajpayee government.
    • The Competition Act, 2002, as amended by the Competition (Amendment) Act, 2007, follows the philosophy of modern competition laws.
    • The Act prohibits anti-competitive agreements, abuse of dominant position by enterprises, and regulates combinations (acquisition, acquiring of control, and Merger and acquisition), which causes or likely to cause an appreciable adverse effect on competition within India.

     

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  • China’s total trade surplus with India ‘surpasses $1 trillion’

    china

    The favourable trade balance that China has enjoyed with India, since bilateral trade began to boom in the early 2000s, has now exceeded $1 trillion.

    India-China bilateral trade

    • In 2021, annual two-way trade crossed $100 billion for the first time, reaching $125.6 billion, with India’s imports accounting for $97.5 billion, pegging the imbalance at close to $70 billion.
    • This is certainly a healthy deficit compared to the industrial development in both nations.

    A quick backgrounder

    • Trade ties began to boom since the early 2000s.
    • This was driven largely by India’s imports of Chinese machinery and other equipment.
    • It rose up from $3 billion in the year 2000 to $42 billion in 2008, the year China became India’s largest trading partner.

    The Hindi-Chini buy buy

    • A third of machinery and almost two-fifths of organic chemicals that India purchases from the world come from China.
    • Automotive parts and fertilizers are other items where China’s share in India’s import is more than 25 per cent.
    • Several of these products are used by Indian manufacturers in the production of finished goods, thus thoroughly integrating China in India’s manufacturing supply chain.
    • For instance India sources close to 90 per cent of certain mobile phone parts from China.

    India’s export to China

    • Even as an export market, China is a major partner for India.
    • China is the third-largest destination for Indian shipments.
    • At the same time, India only accounts for a little over two percent of China’s total exports, according to the Federation of Indian Export Organisation (FIEO).

    Should we worry about this?

    • Trade deficits/surpluses are just accounting exercises and having a trade deficit against a country doesn’t make the domestic economy weaker or worse off.
    • In this light, India’s trade imbalance with China should not be viewed in isolation.
    • For instance, pharmaceuticals that India exports to the world require ingredients that are imported from China.
    • Chinese imports of Indian seafood are one area that has recently shown robust growth and carries scope to grow in future.

    So, having a trade deficit is good?

    • Of course NOT. Running persistent trade deficits across all countries raises two main issues.
    1. Availability of foreign exchange reserves to “buy” the imports.
    2. Lack of domestic capacity to produce most efficiently.

    Can we ban trade with China?

    Ans. Certainly NOT!

    • It will hurt the Indian poor the most: This is because the poor are more price-sensitive. For instance, if Chinese TVs were replaced by either costlier Indian TVs or less efficient ones, unlike poor, richer Indians may buy the costlier option.
    • It will punish Indian producers and exporters: Several businesses in India import intermediate goods and raw materials, which, in turn, are used to create final goods — both for the domestic Indian market as well as the global market (as Indian exports).
    • Pharma sector could be worst hit: For instance, of the nearly $3.6 billion worth of ingredients that Indian drug-makers import to manufacture several essential medicines, China catered to around 68 per cent.
    • Ban will barely hurt China: According to the United Nations Conference on Trade and Development (UNCTAD) data for 2018, 15.3% of India’s imports are from China, and 5.1% of India’s exports go to China.
    • Chinese money funds Indian unicorns: India and China have also become increasingly integrated in recent years. Chinese money, for instance, has penetrated India’s technology sector, with companies like Alibaba and Tencent strategically pumping in billions of dollars into Indian startups such as Zomato, Paytm, Big Basket and Ola.
    • India will lose policy credibility: It has also been suggested that India should renege on existing contracts with China. This can be detrimental to India’s effort to attract foreign investment.

    China is our Frenemy. Here is why.

    • The first thing to understand is that turning a border dispute into a trade war is unlikely to solve the border dispute.
    • Worse, given India and China’s position in both global trades as well as relative to each other, this trade war will hurt India far more than China.
    • Again, these measures will be most poorly timed since the Indian economy is already at its weakest point ever — facing a sharp GDP contraction.

    Way forward

    • In the long term, under the banner of self-reliance, India must develop its domestic capabilities and acquire a higher share of global trade by raising its competitiveness.
    • But no country is completely self-sufficient and that is why trade is such a fantastic idea.
    • For the long run, a more effective strategy needs to be built to provide an ecosystem that addresses the cost disability of Indian manufacturing leading to such imports.

     

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