Foreign Policy Watch: India-China

Leveraging its market to force China to settle border issue

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not much

Mains level : Paper 2- India-China relations

The article charts out the plan to leverage the potential and the present size of the India markets to settle the boundary dispute with China.

Boycott of Chinese goods: view and counterview

  • After Galwan incident, 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 would be disproportionately higher for India.
  • Our dependence can be reduced substantially if there is a national will and resolve to do so.

Need for mutually acceptable boundary agreement

  • China may not be willing to go back substantially from the areas they have occupied.
  • Agreeing on maintaining peace and tranquillity or clarification of the LAC has left space for the Chinese to create border incidents which have now led to casualties.
  • So India needs to get China to seriously negotiate a mutually acceptable boundary agreement.

India could use its market as leverage

  • Size of Indian market: The size of the Indian market and its potential in the coming years provides India considerable leverage.
  • 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.
  • The Chinese have a competitive advantage and are integral to global supply chains.
  • But whatever they sell is, and can be, made elsewhere in the world.
  • Indian can produce everything imported by China: 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.

Steps need to be taken to use market as leverage

  • Focus on those imports from China which have been increasing: The initial focus should be on items which are still being made in India and where imports from China have been increasing.
  • Depriciate Rupees: If the RBI let the currency depreciate in real terms it would be equivalent to an increase in import duties of about 10 per cent.
  • China-specific safeguard duties and use of non-tariff trade barriers should be used in segments like electrical appliances to let Indian producers expand production and increase market share.
  • Government Finances for expansion: The government should also facilitate the flow of finances for expansion and provide technical support for testing, improving quality and lowering costs of production.
  • Look for other players: In critical areas such as Active Pharmaceutical Ingredients, we need a vigorous approach to procure from elsewhere and have early production in India.
  • The government could provide support for environmental compliance to bring down costs of production.This would create demand for domestic goods and services.
  • There are strategic sectors where we should reduce vulnerability: Like scrutiny of -Chinese FDI, Chinese 5G participation etc.
  • Assured government procurement: In critical areas like solar panel and grid storage batteries private investment for manufacturing in India would be triggered by assured government procurement.

Consider the question “Size and potential of India market could be leverage by India to settle the issues it has with its neighbour. What India needs to achieve this is a strategy and its implementation. Comment.”

Conclusion

A sustained and graded economic response to the recent Chinese conduct on the border is needed. 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. We could then work together to make this the Asian century.

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