How economic distancing from China has benefited India

After it remained suspended in the wake of Chinese aggression in 1962, Indo-China trade was resumed in 1978. With China’s accession to the World Trade Organization (WTO) in December 2001, trade between the two countries received further impetus. To get more China business latest news, you can visit shine news official website.

Indo-China trade, though lop-sided, was thriving till the outbreak of coronavirus. Apart from certain essential items (electric machinery, telecom equipment, pharma ingredients), a large number of low-priced shoddy and spurious products from China were flooding Indian markets. The deluge of imports from China had adversely affected India’s manufacturing sector, particularly micro and small industries. Dumping by China had forced many industrial units to operate at below capacity levels and in some cases to shut down. This had negatively affected local employment.

The methods adopted by China for dumping cheap goods in the Indian market included (a) under-invoicing of goods, (b) entry of prohibited goods by mis-declaration, (c) re-routing goods through other countries (mainly Cambodia, Singapore and Vietnam), (d) currency manipulation and (e) smuggling, both at sea and on land. All these unfair trade practices were in contravention of WTO regulations. The malpractices adopted by China resulted in a huge trade deficit. In 2019-20, the volume of trade between India and China was US$ 81.8 billion. Indian exports to China stood at US$ 16.6 billion, while imports from China totalled US$ 65.2 billion. Thus, the trade deficit was US$ 48.6 billion. Trade deficit of this order was a matter of concern and India had time and again raised it in trade talks with the partner.

The Department Related Parliamentary Standing Committee on Commerce (Chairman: Naresh Gujral) which presented its report to the Indian Parliament on July 26, 2018, highlighted in no uncertain terms the disastrous consequences of Chinese dumping on domestic industries—some of which were labour-intensive and had traditionally been large employment generators (e.g. textiles)—and suggested various measures to rectify the situation. It made the shocking revelation that dumping of Chinese solar panels led to a loss of nearly 2 lakh jobs as nearly half of the capacity of domestic industry remained idle.

Nevertheless, India was less proactive in adopting trade defence measures against China provided under WTO. With the Doklam stand-off of 2017 still fresh in mind, the Indian government was hesitant to take any drastic measures against China, fearing arm-twisting by the latter on its borders. Showing extreme restraint, the government chose to ignore the menacing trade practices of the neighbour.When the World Health Organization (WHO) declared the Covid epidemic as a pandemic on March 11, 2020, normal economic activities around the world were disrupted. India announced a stringent nationwide lockdown from March 25, 2020. As a result of the sudden slow down in economic activities, the Indian stock market turned bearish and equity prices fell. In an opportunistic move, China-backed funds started acquiring stakes in Indian companies that had been severely hit in the wake of the pandemic. For example, People’s Bank of China bought a 1.01 percent stake in HDFC (India’s biggest housing mortgage lender) in the first quarter of 2020. This proved to be the last straw on the camel’s back.

In a swift move on April 18, 2020, the government tweaked its foreign direct investment (FDI) policy intending to curb takeovers or acquisitions of Indian companies during the coronavirus pandemic. According to the revised policy, any investment by any entity of a country that shared a land border with India or where the beneficial owner of investment was a citizen of any of these countries would need government approval. Further, any transfer in the ownership of any such existing or future FDI would also require government approval.

India shares land borders with seven neighbouring countries of Pakistan, Bangladesh, China, Nepal, Myanmar, Bhutan, and Afghanistan. India did not name China, but it was obvious that the move was aimed at preventing hostile takeovers by Chinese companies of Indian firms whose market values had dipped because of Covid-related uncertainties.