India must avoid China blockade without due deliberation
Yes, China needs India
One can argue that Indo-China annual trade at around $88 billion is quite small by what China does with countries like the US, EU and Japan. But that is off the point. The fact is that India runs a $70 billion trade deficit with China and thus constitutes a big chunk of the overall trade surplus of China. With the Sino-US trade already under pressure over the last two years, China needs Indian trade to grow. Despite the saber rattling, the reality is China cannot afford to lose out a trading partner like India. India offers a ready and lucrative consumer market.
India needs China too
For India, the trade with China is an important link in its supply chain. There are sectors like electronics, pharma and automobiles that rely heavily on China for supply of raw materials. Nearly two- thirds of India’s supply of APIs for the pharma companies comes from China. We have already seen the disruption caused by chinks in the supply chain. With few countries able to match the heft and scale of China, Indian economy does need Chinese trade to flourish.
Don’t forget investments
Over the last few months, India has become a lot tougher in curbing the flow of any kind of FDI or FII flows from China. Interestingly, China does not rank among the top FDI sources into India but that may be misleading. It is estimated that a lot of flows that come from major countries like Mauritius and Singapore may actually be backed by Chinese companies. A similar estimate has also been put out for FPI flows and these can never be confirmed. But the bigger impact could be on the start-up ecosystem in India. Most of the big IT unicorns like Paytm, Swiggy, Snapdeal, Ola, Zomato and Hike have investments from China. It would be very difficult for the Indian government to wish away this start-up funding reality.
Time to talk and reason
Both India and China realize that two of the largest consumer markets cannot afford to be at loggerheads. The lesson from the prolonged trade war between the US and China has been that in any kind of economic tit-for-tat, there are no winners in the long run. The situation is a lot more pressing for India. Its fiscal deficit at above 5% and the prolonged lockdown has already put the economy under tremendous pressure. There are diplomatic solutions to such issues and grandstanding will not help. It is the time to build close ties with China, not to antagonize them economically!
Targeted Keywords –China Economics, China needs India, surplus of China,start-up ecosystem in India,investments from China,FDI or FII flows from China,surplus of China, lucrative consumer market