India steps up economic offensive against China
Industry stakeholders pointed out that the significance of the decision lies in the relaxation of norms to encourage Indian firms.Updated: Jul 02, 2020 07:06 IST
Chinese companies will no longer be allowed to participate in Indian highway projects, including through the joint venture route; China will not be allowed to invest in India’s micro, small and medium enterprises (MSME) sector; and imports from China will be discouraged, Union minister for road transport, highways and MSME, Nitin Gadkari, has said.
The minister’s statement, in an interview with the news agency Press Trust of India, is part of India’s efforts to impose economic costs on China in the wake of continued Chinese aggression at the Line of Actual Control (LAC), and a part of India’s signalling to China that this aggression cannot coexist with preferential economic ties, according to two officials familiar with the decision-making process in government.
Gadkari’s comments come in the backdrop of India’s ban on 59 Chinese apps earlier this week, decisions by various government departments to cancel contracts with Chinese firms, reports of imports from China getting stuck at ports, and an earlier decision, in April, to tighten foreign direct investment inflows from neighbouring countries — with an eye on China — by requiring them to go through a more rigorous government approval process.
On Wednesday, Gadkari said, “We will not give permission to joint ventures that have Chinese partners for road construction. We have taken a firm stand that if they (Chinese companies) come via joint venture in our country, we will not allow it.” He added that a policy will be out soon banning Chinese firms, and relaxing norms for Indian companies to expand their eligibility criteria for participation in highway projects.
To be sure, according to both industry stakeholders and sectoral experts, there are a limited number of highway projects which have Chinese involvement at the moment. But Gadkari said rebidding will be done if there are any Chinese joint ventures, even as the decision will be implemented for current and future tenders. The minister also said that a process to relax financial and technical norms has been set in motion to ensure that Indian companies can qualify for larger projects and do not need foreign partners.
“Even if we have to go for foreign joint venture in the areas of technology, consultancy or design, we will not allow Chinese,” he said.
Industry stakeholders pointed out that the significance of the decision lies in the relaxation of norms to encourage Indian firms. “There have not been many highway projects with Chinese investment either in the past or at present. Only a couple of projects are awarded in which joint ventures exist with Chinese as the minority partners with their Indian counterparts, mainly present for technical expertise. It is more like a technical collaboration than on ground work. This is also the reason the minister has mentioned that there is a need to revisit the technical qualification on the bidding process,” said Rajeshwar Burla, vice president, corporate ratings, ICRA Limited.
But officials pointed to the larger message behind the decisions. An official, who spoke on condition of anonymity, said: “Aggression at the border and preferential treatment on cross-border trade, commerce and investment cannot go hand-in-hand.” He said China had chosen the wrong time and the wrong country to antagonise. “It will be foolish on part of any country to enrich an aggressor by allowing preferential trade and commerce while the aggressor country is threatening its territorial integrity and sovereignty.”
The second official, who represents an economic ministry and did not want to be named either, said that China had surplus capacity which its domestic economy cannot consume, making it largely dependent on exports for growth and survival. “India was its large and growing market and China has hurt the entire nation. It is the duty of all citizens, businessmen, government agencies and public sector companies to rely more and more on Made in India products than goods from an enemy country. This is the national sentiment that is getting reflected everywhere in the country now.”
This larger message assumes significance in the wake of a drastic increase in Chinese economic engagement in India over the past decade, particularly after 2014. A monograph by journalist Ananth Krishnan for Brookings India in March 2020, titled Following the Money: China Inc’s Growing stake in India-China relations, pointed to the difficulties in estimating the exact quantum of Chinese foreign direct investment (FDI) for various reasons — there is no exhaustive list of Chinese companies operating in India with either government because of the routing of investment through various countries; the presence of different FDI routes to India, which means a single government agency does not have all the data; and the fact that the Chinese government is not forthcoming with the information it has, among other reasons.
But with these caveats, the report suggested that while in 2014, net Chinese investment across sectors was $1.6 billion, and by 2017, it rose to $8 billion, the total investment exceeds official figures “by at least 25%”. If announced projects and planned investments are taken into account, it crosses, according to the paper, at least $26 billion.
The government is applying the same broader principle — of discouraging Chinese investment and encouraging Indian capacity — to MSMEs, widely considered the backbone of the Indian economy in terms of employment generation and contribution to the GDP. While Gadkari said the idea was to encourage both local capacity and foreign investment, this will not include the Chinese. “For upgradation of technology, research, consultancy and other works, we will encourage foreign investment and joint ventures in MSMEs, but in case of Chinese we will not entertain them,” he said.
On reports of the stopping of consignments of imports from China, the minister said there is “no arbitrary stopping of goods” at Indian ports and that he had urged departments concerned to expedite clearance of consignments which were booked two to three months before the current situation took shape, according to PTI. But the minister added that government was initiating path-breaking reforms to help MSMEs and businesses in a bid to make the country self-reliant. “It is a good step. The imports from China will be discouraged and the country will take large strides towards self-reliance.”
Analysts see the government’s decision as a willingness to use India’s economic strength for strategic ends, but also offer a note of caution.
Manoj Kewalramani, a fellow of Chinese studies at the Takshashila Institution, said, “Unfortunately, given the nature of the Sino-Indian economic relationship, leverage is limited. First, it’s not like the Chinese are heavily invested in Indian MSMEs or highway projects. Moreover, targeting investments in infrastructure only hurts India’s development with little strategic gain. Second, targeting joint ventures might further cut off capital flows into India, something India needs more of instead to deal with the pandemic triggered slowdown. Third, restricting imports can be a double-edged sward. Chinese imports are critical to Indian exports. So the government needs to be careful in doing this, lest it hurt Indian exporters.”