India Will Come Out A Winner

For the last few days, the media have been busy reporting on the sudden and uncalled for violence that erupted at a certain point on the Line of Actual Control (LAC) between China and India. There can be and in fact, are differences on border issues between many countries and most of them have put in place several mechanisms at both military and diplomatic levels

for their peaceful settlement, China and India being no exceptions. That is why the present unprovoked aggression by Chinese troops, that too when the entire world is fighting a pandemic having its origins in China, has caused so much public rage and indignation.

Though both are developing economies, in terms of purchasing power parity they are second and third largest economies in the world. A major source of that growth in both nations have been effective participation in world trade. It is truer for China than India.

Orthodox Marxist ideology considers international trade as an instrument of capitalist exploitation. The first ever decree signed by Lenin was nationalisation of Russia’s foreign trade. Engagement with the outside world was viewed with suspicion. China was also not an exception to begin with. It was only after economic reforms since the early 1970’s, that China got proactively engaged in world trade.

Just as Japan rebuilt its economy taking advantage of the huge American market, China used its accession to the World Trade Organisation in 2001 very effectively. It became a highly export oriented economy, simultaneously keeping its own market relatively closed, except for industrial raw materials, required for export production.

Such a policy definitely helped China to emerge as the second largest economic super power, but it has also caused tension among its trade partners. President Trump has been consistently demanding greater market access as the bilateral trade surplus has been consistently extremely high in favour of China. The Trump administration has taken steps while China has also retaliated, resulting in the worst trade war during the last half century.

India is also faced with an identical problem. Her bilateral trade deficit with China is simply not sustainable. But in contrast to the actions of the USA, India has not taken any coercive measures. Only, the issue has been regularly flagged in bilateral discussion on trade matters. India is a firm believer in the fundamental principle that all problems can be solved through discussions, if both sides approach with open minds.

China has been going through a fairly sustained deceleration in its economy. The pandemic will certainly have a huge contractionary impact on the global economy. For an export -dependent economy like China, this would be disastrous. Open global market which enabled China to have unprecedented growth and to bring millions of Chinese people out of miserable poverty will no longer be available for at least the next two years. China must recognise this stark reality.

India is a vast market for a broad spectrum of Chinese goods. In several product categories, Chinese firms are market leaders. In addition, China is also a big investor. China enjoys a trade surplus with India to the extent of $ 50 billion plus annually.  Any disruption in trade engagement due to political differences on border issues will be far more detrimental to the already weakened Chinese economy than to India. And that will directly affect millions of jobs, resulting in huge unemployment. Most of the gains of poverty alleviation that China made will get eroded.

India can either make   indigenously or procure from other sources what China supplies. China could enter and consolidate market position essentially due to lower costs. Indian firms have the both the ability to innovative and capacity to ramp up production, and emerge as a more globally competitive economy.

Public opinion is for boycott of Chinese goods; and in a democratic country like India, it means a lot.

Script: B.Bhattacharyya, Ex Dean. IIFT