Indo-China business as usual

China regaining its position as India’s top trade partner in 2020 reflects the hard economic realities

Two key messages emerge from the reports that China has regained its position as India’s top trade partner in 2020, replacing the United States. One: the economic interests far outweigh the border tensions, prompting the two countries to quickly get back to business as usual. Two: India still has a long way to go to come out of its dependence on China in a wide range of sectors, including heavy machinery, pharma, telecom and mobile equipment and home appliances. Though the Centre had recently unveiled the production-linked incentive (PLI) scheme to make India an efficient and resilient manufacturing hub, in tune with the call for promoting self-reliance, it will take at least four to five years to create fresh capacities in specific sectors and till then the dependence on China will continue. The PLI scheme, designed to lure international companies seeking to diversify from China, has met with limited success because such measures take years to bear fruit. Despite the unresolved border tensions, the Centre has now gone ahead with resuming approvals for foreign direct investment (FDI) proposals from China on a ‘case to case basis’. In fact, it has set up a coordination committee, comprising representatives from external affairs, home, commerce and industry ministries, to smoothen the process and is to clear 45 such proposals. This only reflects the hard economic realities. The latest data shows that New Delhi’s actions such as the ban on Chinese mobile apps had minimum impact on trade.

The two-way trade between India and China stood at $77.7 billion last year which was more than the bilateral trade with the US, at $75.9 billion. This can be attributed to India’s continued reliance on Chinese imports and the fall in demand for goods in other markets due to the pandemic. The total imports from China at $58.7 billion were more than India’s combined purchases from the US and UAE, the second and third largest trade partners respectively. While it is in India’s long-term interest to permanently settle the border dispute, the bilateral economic cooperation must be allowed to progress. In the recent standoff in eastern Ladakh, Indian forces did well to quickly wrest the initiative, thereby strengthening India’s bargaining position. This, followed by the five-point resolution adopted by the Foreign Ministers of both countries in Russia in September and the subsequent rounds of military-level talks, has finally resulted in a mutually monitored disengagement. In the Ladakh sector, the solution lies in a negotiated settlement. Once this is broadly accepted by both sides, detailed negotiations can follow. In the meantime, both sides must commit to completely demilitarise the area and station their forces at mutually agreed locations, to be monitored through a joint mechanism.

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