India-China Economic Ties Expected to Get Back on Track, for Now

(The Straits Times) — India and China have managed to disengage their forces at Pangong Tso, a cross-border lake, along the de-facto border which has been a source of tensions, with a senior Indian army commander saying both countries were on the brink of war in August.

Now, with the pullback of forces complete, questions have arisen about the fallout on the economic relationship between the two Asian giants.

Experts believe that in spite of New Delhi’s desire to reduce India’s economic dependence on China and to diversify supply chains, economic ties would continue to grow.

All indications are that the government will allow more investment from China, India’s largest trading partner, in non-critical or non-strategic areas.

Some three dozen FDI proposals from China are expected to start moving, according to media reports.

Sanjeev Sanyal, principal economic adviser in India’s finance ministry, confirmed that the government had sped up consideration of FDI proposals including from China.

“Yes even from China, some FDI proposals are coming. We have sped up except in strategically sensitive sectors,” he said during an interaction on Wednesday (Feb 24) at the Indian Women’s Press Corps.

“In strategic sectors, we continue to be careful. We are not taking our eye off that ball. But if someone sets up a button factory, it does not matter to us whether that is owned and operated by Chinese, Indonesian or U.S. entities.”

Among others, telecommunication and ports are deemed strategic sectors.

India and China have a robust economic relationship that has thrived over the last few decades as both countries sought to delink economic ties from their border troubles. But the latest stand-off triggered by a violent clash in the Galwan Valley, which led to the loss of lives on both sides, had an impact on the economic relationship.

This came on top of the Covid-19 pandemic which already triggered a debate in India on over-dependence on Chinese imports and the need to promote local products.

New Delhi, citing security reasons, moved to ban 59 Chinese apps, including TikTok, and announced that Chinese companies would not be allowed to partake in highway projects.

Experts here believe that the economic relationship between the two countries, which has thrived over the past three decades, is now no longer immune from border tensions.

“It’s very unlikely we will go back to the pre-2020 phase in the relationship. India has been saying for the last 10 months that you cannot disassociate border troubles from the larger trajectory of the relationship. What has now happened along the border is not a long-term resolution of the border but a tactical adjustment,” said Professor Harsh V. Pant at King’s College London who is also director of studies, Observer Research Foundation, New Delhi.

“I don’t think it is possible for India to go back to the paradigm where trade was seen as a positive that allowed the two countries to patch up differences in other areas. There is no agenda (between India and China) at the moment, just limiting all the damage.”

He noted that efforts to diversify the supply chains would continue.

“I think India will certainly work towards reducing dependence on critical segments and working with like-minded countries like Australia and Japan in the global supply chain initiative.”

Another analyst echoed this view.

“Taking a medium-term view to correct trade imbalances and promote the recent shift towards indigenisation, India is expected to accelerate its efforts to lower reliance on manufacturing imports, attract FDI into focus sectors and vie to build capacity domestically,” said DBS Group Research economist Radhika Rao.

This article was originally published by The Straits Times

Contact editor Yang Ge (geyang@caixin.com)

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