Shutting Our Doors?: The Market Consequences of India-China Standoff

Observation has reached its peak for me as I find my eyes looking for details behind each jar of Nutella or on the side of our microwave. All thanks to the lockdown that has dragged me back home from college and given me enough free time to look around the house with a magnifying glass, which I wouldn’t have done otherwise on my busy school days as a child. And observation, mixed with a little bit of research, has led me to the understanding that my house, which in fact buys everything from local stores, actually reeks of products from China. From the water geyser to the processor in the ceiling fan, from the dinner crockery to the food processor, from parts of our mobile phones to our daily t-shirts, nothing is spared from the clenching claws of China. The fact that all these products were available to us in the local stores at prices comfortable enough for our pockets, speaks volumes about the kind of consumerism China has created in each and every household, office, company, factory, industry and restaurant in India.

The calls to boycott Chinese goods had started gaining momentum when the martyrdom of twenty Indian soldiers in the Ladakh stand-off against China aroused public sentiment, and they took to their hands to avenge the soldiers’ deaths by publicly breaking TV sets of Chinese brands. These calls couldn’t have gone unnoticed by the government which then had to take a step to show India’s hostility towards China. A violent uprising, that had cost us our soldiers’ lives, very recently, was discarded as a move from our end, also taking into account that China had retreated from the Indian borders. Now the question was :

Can India afford to boycott China?

Feasibilities of numbers of steps like - import reduction, import-substitution, self-reliance, and lastly, a blanket ban - were pondered upon. While the other options were on the table, considering the sentimental charge of the public, the possible implications of a blanket ban were considered. A blanket ban is a complete prohibition, which in this case would mean banning not just imports from China but also trade and investment. A superpower like the US has openly made hate speeches on China and has also taken moves such as shutting down a Chinese consulate in Texas. But considering the Indian economy’s huge dependence on China, can India really impose a blanket ban on China and move to self-reliance as quickly as we think? A step-by-step analysis will help us understand the implications of this move better.

Trade: The Indian economy is heavily dependent on Chinese imports that include intermediate and finished goods. Intermediate goods from China, such as chemicals, pharmaceuticals, electronic components, have long helped industries in India sustain. But if India wishes to take a few steps back in its trading chain with China, India will have to adopt medium to long-term policy moves. These include, but are not restricted to, financial support or subsidising micro, small and medium businesses that can actually manufacture the products that we import from China. The informal sector in the production chain in India, with the right kind of policy support, can eventually lead us to self-reliance in a matter of a few years. However, a step backwards in the import chain from China could also mean opening doors to imports from other countries. For India to become a favourable import destination, certain financial supports like import duty exemption and cash subsidy on imports from other countries are necessary to match the cost of Chinese imports. In the short-term, expediting Free Trade Agreements (FTAs) to lure imports and investments from other countries is one of the most viable options.

Investment: Indian start-ups, with the right kind of investment boost, have a tendency of growing big in this ever-evolving capitalistic world of ours. But a lot of local start-ups fail to garner the kind of investment from major Indian ventures, which is what China has taken advantage of for close to a decade now. Alibaba, invested in an Indian start-up Paytm, back in 2015 when the future of Paytm itself was bleak, but China slyly took advantage of the gap in investment that existed. Moreover, China has not blinked an eye before investing in a lot of local start-ups, knowing very well that like most other start-ups, these too may be loss-making. The reason behind this is that China is ready to make a trade-off of investing in a loss-making start-up to be able to get a footing in the market share of the Indian market. Eventually, when the local start-ups grow enough to have a valuation of over $1 billion and come under the category of ‘Unicorns’, is when it finally comes to our eyes that the major Indian start-ups, like Snapdeal, Ola, Swiggy, Paytm, Flipkart and so many more, have a Chinese investor. To combat the issue of Chinese investors, like Alibaba, monopolising in the Indian market by investing in most Indian unicorns and creating an obvious outsized impact, the Indian government decided to amend the Foreign Direct Investment (FDI) rules to cap off the number of companies an investor can invest in, so as to prevent any hostile takeovers of the Indian market by any foreign investor.

Technology: We’re no aliens to the fact that China practically holds the lion’s share in the smartphone market of India, while India has little to no alternatives in the smartphone arena. It would require huge amounts of investment in research and technology to be able to reduce dependence on China for smartphone technology and components. In addition, Chinese tech firms, like Alibaba, and apps like TikTok, reach the Indian consumers as much as applications like Google, Amazon, Facebook, and Instagram. The Indian government has recently made a move to ban the likes of these Chinese applications that actually have local alternatives, and this as a strategic move has a lasting impact on the kind of hostility India wants to opt for. In fact, a restriction in the telecommunications sector, such as banning Huawei, is also a feasible move considering that Indian alternatives, such as Jio and BSNL, are easily available to the Indian consumers. To top it off, Huawei could also be banned from India’s 5G rollout.

Now, answering the bigger question: Can India really shut its doors by imposing a blanket ban on China?

No, a blanket ban on China will result in a very quick supply disruption leaving the Indian consumers exposed to only a minimal amount of not-so-pocket friendly alternatives. Furthermore, the economy will have to bear high input costs and therefore, this move will prove to be a costly one for India. Instead, the viable solution would be to allow steady withdrawal of Chinese products by allowing import substitution as well as funding the budding industries in the unorganised sector. India will have to take slow steps forward, keeping in mind cost-effectiveness and affordability.


Ishi Shrivastava

I am an inspired reader and writer who built this inclination since school days and took part in editorial teams to hone my skills as well as interest. I am also little bit of a good conversationalist.

The Pangean does not condemn or condone any of the views of its contributors. It only gives them the space to think and write without hindrance.