As US Closes China Gate Will Indian Windows Open? What India must do?

By Salil Mathur (A consultant with IndusGuru)

From soya beans to automobiles, from lumber to lobsters and from industries big to small the impact of Trump’s frown on China is only acquiring seismic proportions. India’s windows could be opening in both directions as Global Value Chain (GVC) see disruptions never experienced before. Its possible overflow will redraw geographic lines of GVC forcing the geo-economic architecture to be overturned completely. This will compel Large Asian Enterprises to move their production lines to low-cost economies like Cambodia, Vietnam, Bangladesh or Sri Lanka. These economies will remain untouched by wrath of the trade war.

This leads to our burning question whether the on-going trade war will open India’s widow of opportunity? India could profit hugely considering that American companies have heavily invested in China for nearly thirty years and will look for putting their investment in new places. And, this will need the government to make moves which are very aggressive, agile, flexible, sensitive and dynamic to every minor or major trade vibration. It’s also a given that American investors have a fair exposure and experience of investments in India. India too knows that tapping into American investments is vital to keep its economy growing at the pace desired by its aspirational population. The government could boost such investments by pulling back from protectionist measures that foreign investments don’t like. The “Make in India” campaign, where global companies were invited to set up manufacturing facilities in India can be capitalized by further liberalising the investment environment.

In an article published in the Economic Times a few days back Hong Kong-based billionaire Victor Fung had told ET that China trade war refuses to abate despite talks of a truce, China is facing higher import duties on exports to the US and would now look to markets such as India where the products can be finished and exported from. “The trade war has made the finishing in China very difficult because of high duties. There is a diversification of final stages of finishing. Made-in-China products will have trouble going in some markets like the US”. “While there are places like Vietnam and Bangladesh that are becoming active, they have limited capacity while India has infinite capacity. We are making that transition ourselves and moving in this direction by necessity”. Additionally, increasing economic trade relations with China may also to some extent ease historical irritants in Indo-Chinese relations. China will also hope to win Indian and Russian support in establishing a new type of rules-based and multilateral trade initiative.

China no longer nurses the illusions of cosy G 2 relations of the Clinton days. This is the window opening for India and the curtains should be drawn too.

President Xi Jinping is firming up plans to visit India for a return summit with the Prime Minister of India, possibly by October 2019. Hopefully, both sides will be more ambitious in their aims, so that substantial outcomes that benefit both sides get agreed upon. In particular, a border settlement within a clear time frame is vital to the establishment of comprehensive trust between both sides. Given innovative handling, international circumstances have made the border dispute between India and China a matter that could get settled during the term in office of the present governments in both countries.

US Secretary of State Mike Pompeo’s scheduled state visit on June 24-26, opens up an opportunity to discuss bilateral trade issues and secure an advantage for India. Trump administration’s decision to blacklist Huawei and cut off its access to western software and chip technologies should be seen as an opportunity for the Indian technology industry. It should galvanise building of technology infrastructure and research capabilities to meet possible Huawei requirements. The Chinese Company will not only look for new suppliers to source technology from but would also look to find new markets for their products. India’s own indigenous development and innovations in digital payments and transactions and Aadhar card sufficiently demonstrate India’s technology competency. When last checked, the children of Aryabhatta were flourishing well.

The rupture of trust between America and China and the consequent disruption of global supply chains represent an opportunity that India cannot afford to squander.

The views, thoughts, and opinions expressed in the text belong solely to the author and do not reflect the position or official policy of IndusGuru Network Partners

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