Shift Indo-China ties: How India can use economic nationalism to break dependence on Chinese goods

The Atmanirbhar Bharat scheme could give a much-needed fillip to disrupted business operations by promoting household manufacturing, and encouraging local substitution of imports.




Anupama Kumari


India and China are two major nuclear powers in the world, and are also the two most populous countries. Both the countries have the fastest growing major economies in the world with mutual economic and cultural interdependence.


The modern relationship between India and China began in 1950s. The relationships between contemporary China and India have been defined mainly by border disputes following the Indian independence. There was little trade and strategic partnership between the two countries; and the economic relationship was getting adversely affected by tensions faced by the Indian defense forces on the India-China border in the middle of the twentieth century.


However, since the late 1980s, the countries have successfully rebuilt diplomatic and economic ties which ultimately resulted in China becoming India’s largest trading partner. In February 2019, India imported more than USD 62 billion worth of goods from China between April 2019 and February 2020, and exported around USD 15.5 billion worth of products (india.gov.in). According to Rejaul Karim Lashkar, an expert in Indian foreign policy in the 21st century, “Currently the two countries are cooperating on a range of International issues like trade, climate change, and reforms of global financial order, among others, to promote common interest.”


But the past is repeating itself in 2020. Amidst the COVID-19 pandemic, the Chinese military forces clashed with Indian army, which is being seen as a turning point in India’s bilateral relationships with China. A “violent face-off “occurred in June 2020 in the Galwan Valley in Ladakh, where military forces from both the countries clashed, resulting in casualties to both sides. Speaking to CNBC Nirupama Rao, India’s ambassador to China between 2006 to 2009, said “This is definitely a turning point in the Bilateral relationship from India’s side, but I would not call it a breaking point”. According to many experts, this is true because if we see the India’s exposure to China, it is quite asymmetric in terms of trade and investment. That is why decoupling and disengagement from China is not an easy task. They added that It will be tough for India to suddenly reduce trade and economic ties with China as India imported four times more goods and services than it exported to China.


The good that are imported from china are as follows: First, regarding capital goods, Indian manufacturing is dependent on supplies from China. This includes a wide variety of machinery, including electrical machinery, semiconductor driven machinery etc. We also import fertilizers from China. The primary hurdle is that there are a number of imports which are essential. For example, humidifiers which are being used in the COVID-19 battle, are again mainly sourced from China. For medical masks too China is the main source. Even liquid soap, which is much in demand across the country today, again happens to be mainly sourced from China. We need to prioritise areas where India can move back from its dependency on China. Our approach should be to develop sector wise specific strategies.

In recent weeks, anti-China sentiment has risen in India, with people calling for a boycott of Chinese products. This is bound to affect the growing market of Chinese products in India. New Delhi had already introduced restrictive measures on Chinese Foreign Direct Investments before the June border clash. The current escalation in border dispute with China can also be seen as a factor of India's increased closeness to allies like the USA, Japan, Australia, and Russia, in cultural and economic segments.


As tension increased at Indo-China border, Indian government on June 29, 2020 banned 59 apps of Chinese origin. The ministry said that “it has decided to block the 59 apps for data security and to safeguard the sovereignty and Integrity of India “, under article 69A of IT act. This step will affect the of Indian economy too as investments of up to $1 billion by these apps in India will remain suspended. India not only cancelled orders for ‘faulty’ rapid test kits, it revised FDI policy to curb opportunistic takeover of Indian companies, aimed at China. The Atmanirbhar Bharat scheme could give a much-needed fillip to the country’s disrupted business operations by promoting household manufacturing, encouraging local substitution of imports of low-technology goods from other countries, particularly China.


The Rs 20-lakh-crore stimulus package announced by the government focuses on tax breaks for small businesses, as well as incentives for domestic manufacturing. The Rs 3-lakh-crore collateral-free assistance handed out to MSMEs will help fasten their operations. This move could help recover India’s factory output, which registered low productivity in March with the Index of Industrial Production contracting 16.7%. Manufacturing sector output also reduced to 20% in March, while electricity generation shrank almost 7%. All categories of manufacturing industries showed a contraction in production in March, with the worst affected being auto (50% decline) and computer & electronic products sectors (fell almost 42%). China’s agriculture and consumable items like tea, horticulture and floriculture could also see a big downfall. So, investment in the food processing sector could be a big opportunity for India as trade could move out of China.


There is a strong mood for economic nationalism across the country. Self-dependent, specially for necessary goods and health items, is crucial for any country. India will have to dig deep into its resources to become a self-reliable economy. The COVID-19 pandemic too has taught us to shift our focus towards increasing domestic production. Such changes throughout the Indian economy in all the three sectors are going to be the new normal with consumers choosing “Vocal for Local” over Chinese chattel.


(Anupama Kumari is an Intern with Academics4Nation. She is currently doing Economics MA from BHU.)

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