Vital to strike right balance between Chinese trade, India’s security

Ajay Banerjee

New Delhi, July 22

The Economic Survey tabled today focused on ‘striking’ a balance between trade and national security with China. It also mentioned how China could strangle global supply chains.

Risk of economic coercion

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China’s dominance over so many product categories creates, first and foremost, a risk of economic coercion where the government (in Beijing) restrains access to crucial inputs for political leverage. Economic Survey

The survey said it was part of the strategy to ‘strike’ a right balance between the trilemma of trade with China, investment by China, and India’s territorial and non-territorial integrity and security. This, it said, was part of the growing India’s ‘Mittelstand’.

The Economic Survey said the US and China are gradually decreasing their reliance on global markets. It cited the Bank for International Settlement (BIS) saying “It shows that despite its policies, the US remains reliant on Chinese inputs. In fact, the rise in trade through Mexico and Vietnam is a result of Chinese firms re-routing their supply through these countries (or by locating themselves in these countries)”.

Several countries have adopted a ‘China plus one strategy’ to reduce their reliance on China for high-tech electronic products and components. “While India may not be an immediate beneficiary of the trade diversion from China, it has witnessed a substantial increase in its electronic exports over time,” the survey said, citing global giant Apple’s $ 14 billion production in India.

The Economic Survey cited a report saying, “China’s dominance over so many product categories creates, first and foremost, a risk of economic coercion where the government (in Beijing) restrains access to crucial inputs for political leverage.”

India faces two choices whether it can integrate into China’s supply chain or promote FDI from China. “Among these choices, focusing on FDI from China seems more promising for boosting India’s exports to the US,” it added.