Steps that led to our dependence on China

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 Steps that led to our dependence on China

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• Open fault lines: The India-China relationship is witnessing tumult of a high order, after the border skirmishes. There are demands to boycott Chinese products and investments, but given the dependence, Indian govt. is in a bind.
• Fifteen year long journey: China made India dependent in telecom over a long period of 15 yrs, by taking over the markets for telecom and electronics products. That's the backbone for "Digital India". Then came the total domination in APIs (Active Pharma Ingredients) where it commands 90% share in many APIs. Indian drugmakers were able to offer cheap medicines due to these imported APIs.
• A dangerous dependence: For a large country like India, such "total dependence" is ill-advised, but a sudden shift away from it also will be dangerous. Only a steady transition to a new normal can be attempted.
• How the story began: In 2003-04, Chinese products in Indian imports were a minor part, worth just $3 b, and trade deficit of India was just $1 billion. By 2008 that grew to $32 b and $23 b, resp. By 2017-18, India was importing $76 b worth of Chinese goods. Trade deficit was $63 b, more than 40% of total trade deficit of India. Later the figures moderated a bit.
• What gave China a push: The trade liberalisation that led to a lowering of average import duties on industrial products, gave Chinese imports a big push.

1. In 2000, avg. duties were 33%, but they were just 9% by 2008.
2. India also had to be remove Quantitative Restrictions (QRs) on imports (like import licensing) in 2001

• Over-dependence on marketplace: Indian governments believed that instead of consciously focussing on building strengths for industrial sector, it should just leave everything to the "marketplace magic". Import duties were to be brought down to East Asian levels. Sadly, Indian manufacturing was not as competitive as the East Asian one, which had developed itself to meet any kind of competition (and be a globally competitive producer too).
• Why not reverse it: All governments have deepened import liberalisation, thereby raising import competition for domestic Indian industry. The tool was FTAs - Free Trade Agreements. When the FIPB (Foreign Investment Promotion Board) was dissolved in 2017, FDI was left with zero scrutiny.
• FDI and takeover: The process that started in 1990s, accelerated in the 2010s, and many Indian firms were taken over by foreigners via the FDI route. Surprisingly, there is no single figure available for the exact scale of Chinese investment in India. The DPIIT of India says it's $2 billion, while the Chinese say it's $8 billion!
• Domination, and U-turn: The govt. kept praising many Indian unicorns that had employment potential in the gig economy. Many were dominated by Chinese investors. Then, a sudden ban was imposed on Chinese firms (Apps) and one such firm is directly impacted. Since India dropped out of the RCEP grouping, it is today in a better position to take a call.

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