Economic Survey 2024: What policy should India adopt for regulating Chinese investment

India’s trade deficit with China is at $85 billion–and this figure does not include the Chinese products reaching our shores through the free trade agreement (FTAs) with ASEAN countries.

To become truly, Atmanirbhar India has to stand on its feet. In last few years, Prime Minister Narendra Modi has given the country a long cherished dream of becoming a Viksit Bharat, that too self-reliant. Now with a mandate for Modi 3.0, the time has come to lay the foundations and deepen the thought process. The dual target of making the country developed and empowering the citizens and entrepreneurs, neither can be achieved with short-sightedness nor with maintaining the status quo. There is need for a doctrine, institutional thought process and persistence to achieve this double goal.

The recent Economic Survey exposed the venerability and short-sightedness among the economic wizards. It advocated the re-opening of the gates for Chinese investments rather than for goods. It obviously raised the volume of murmurs in the power corridors. A few days later, Commerce and Industry Minister Piyush Goyal tried shut the debate by reiterating, “There is no rethinking at present to support Chinese investments in the country.” There are enough indications that some in government and certain industry lobby groups are advocating tweaks to open gates for Chinese investment.

Here an institutionalised line of thought is required. The Economic Survey’s mention of China is perhaps a very Babu way of teasing a debate on any contentious issue. Despite Piyush Goyal’s efforts, the debate is still alive.

Let’s take this opportunity to understand: can India be Viksit (developed) and Atmanirbhar (self-reliant)? Let’s take a step back. India and China are both home to the world’s largest population; roughly 40 per cent. And are humankind’s longest-serving civilisations. China is India’s largest trade partner, with export /import volumes exceeding $118 billion (Rs 9.9 lakh crore, at the current exchange rate) in 2023-24.

But India’s trade deficit with China is also the highest at $85 billion, not including Chinese products reaching its shores through free trade agreements (FTAs) with ASEAN countries. This gap was less than a billion dollars at the turn of the century when China joined the World Trade Organization (WTO). Since then, China has transformed itself into a bustling “factory of the world”, capitalising on lower environmental compliances, surplus and cheaper labour, as well as economies of scale. It was producing enough to flood global markets with much cheaper products, especially when other emerging economies like India, Argentina, Brazil, along with other emerging economies continued to struggle with reforms to open up opportunities for their own entrepreneurs.

In the last four years, the country decided to chart the path of self-reliance. In this period India’s imports from China have increased by 56 per cent, whereas exports to China have decreased by nearly 16 per cent. This is when India started increasing the tariff and non-tariff walls to prevent Chinese dumps. This shows that China may have reduced its dependence on Indian imports, but India’s dependence on China has increased enormously. This is the premise on which perhaps the authors of the Economic Survey wanted to build the argument to give a foot in the door to Chinese capital.

Economic Survey’s Arguments

Some arguments have also been given in the Economic Survey in the context of promoting investment from China. Firstly, the Economic Survey says that the China Plus One strategy is being adopted across the world. China Plus One means that countries across the world are now looking for other sources of imports, besides China. In such a situation, the Economic Survey says that India has two options.

The first is that it should integrate with China’s supply chain and the second is that it can get investment from China and manufacture goods in India and export to USA, its largest trade partner, and other countries. The Economic Survey says that choosing Chinese FDI is more beneficial than imports. Therefore, the benefit of Chinese companies investing in India will be that the USA and Europe, which are not immediately buying goods from China, will turn towards India and India will be able to increase its exports.

Secondly, the Economic Survey cites the example of Brazil and Turkey, which are preventing Chinese electric vehicles from entering their countries, but are also making efforts to attract Chinese FDI. European countries are also adopting a similar approach. The Economic Survey says that it is important that India strikes a balance between importing goods from China and bringing capital i.e., FDI from China.

The Anti-Thesis

The antidote is that Chinese funds should kept out of bounds from strategic areas. China is a threat to the security of various countries where Beijing has increased its dominance by pumping in funds to make ports, airports, dams and other infrastructure. Via this, the sovereignty of these countries is compromised. And now many have started feeling debt trapped. Our neighbours like Pakistan, Sri Lanka, Myanmar, Bangladesh, or even nations in Africa, are already feeling the pinch.

They are gradually realising that the countries that have partnered with China have suffered losses, as China’s intention is not to develop the economy and infrastructure in those countries. They have deliberately chosen unviable and uneconomic projects so that the countries are not able to repay the loans raised for those projects. China’s objective has been more strategic, and by trapping its partner countries in a debt trap, it forces them to surrender their rights in important strategic locations and hand them over to China.

Secondly, those positive for Chinese funds argue that once allowed in, Chinese investments can escalate the manufacturing of electronic goods and components, which others are importing from China. Further, we may also be able to increase our exports to those countries which are trying to reduce their imports from China. They argue that South Korea, Indonesia, Thailand and Vietnam have benefited by adopting this policy.

These economies are not part of China’s regional groupings, nor are perceived to be any threat to China, strategically or economically, and in fact act as outposts to various Chinese companies to escape trade restrictions imposed by the Western world and those apprehensive of Chinese ambitions. South Korea and Vietnam also have preferential trade relations with the world’s largest economy, the USA, whereas South Asian countries have liberal FTAs with India.

The third is security risk; the US is weighing the pros and cons of investment from China. It has kept Chinese investment out of all areas where it feels a security threat. In this context, the US conducts a thorough investigation before allowing Chinese investment. For the USA, China is a challenger. And Chinese see India in the same light. There is a civilisational clash between India and China. There is an economic purpose to it as well.

India is one of the largest markets for produce. Following a similar policy of caution, India has established its own 5Gi by excluding the Chinese Huawei company’s 5G. Till now India’s stance has been to keep Chinese investment away. Obviously, the threat from Chinese telecom equipment has not vanished by any imagination. Therefore, it is a difficult choice to allow Chinese investments amidst such security threats.

Fourthly, we should not forget that most of the Chinese companies are either owned or controlled by the People’s Republic of China’s government, or the People’s Liberation Army (PLA), the military of the Chinese Communist Party (CCP). We can’t assume that when Chinese investments come, the companies which are essentially controlled by the government or the Chinese army will function purely on economic principles.

Fifthly, similar to the opaque nature of Chinese imports, Chinese investments are equally non-transparent. An example will make this point clearer. Today, 90 per cent of the world’s agro-chemical raw materials are produced by China, with huge excess capacity built by them. With such a monopoly, China has started dumping their produce at extremely low prices and have engineered a huge decline in prices of Agro-chemicals, between 40 per cent to 80 per cent.

Now, if in India a company Syngenta, which is fully owned by the Chinese government’s ChemChina, and is working as a Swiss company headquartered in Switzerland, is allowed to expand its wings in India in the name of allowing Chinese investments, the harm it could cause to the objective of self-reliance in agrochemicals can easily be imagined. In this case, not being able to stop dumping and now allowing Chinese investments, we may fall into a trap similar to APIs. It’s known that in the name of low API prices, our API industry was killed and later China started fleecing the Indian pharmaceutical industry by charging exploitative prices.

In conclusion, we can understand the dilemma of the government as China is not an ordinary threat. It is also true that in the process of becoming Atmanirbhar, we may have to make some sacrifices or incur losses in the form of higher prices for our intermediate and final produce. But this loss is worth taking if you want to make India self-reliant and secure economically as well as militarily. We have to make our people and also those economists who think that Chinese investment is indispensable realise that we cannot sacrifice our long-term national interests for short-term economic gains. The nation should better pay a cost initially, to become Atmanirbhar, rather than paying the price in terms of vulnerability.

Courtesy

https://ashwanimahajan.wordpress.com/2024/08/22/dilemma-of-choosing-from-two-wrongs/