Home >Opinion >Columns >Opinion | Decoupling with China: Inevitable, but has a price tag

Over the last one week and more, public opinion, both globally and nationally, has grown against China. While the eyeball-to-eyeball confrontation between the armies of the two countries continues along the Line of Actual Control, or LAC, bordering Ladakh, domestically India has begun to tighten the screws on supply chains rooted in China. The sombre and angry mood of the nation was visible at the widely attended funerals of soldiers martyred in the bloody face-off with Chinese troops in Galwan valley. The country is speaking in one voice: decouple from China.

A fair assessment, given that the hegemonic intentions harboured by the Chinese have been unmasked. Not just in terms of what is playing out along the western LAC; their aggressive actions against neighbouring countries in the South China Sea, as well as the unleashing of ‘wolf-warrior diplomacy’ to target Australia—when it called for an independent global inquiry into the origin of covid-19 pandemic in Wuhan, China, and its spread—have raised similar red flags. If the global mood is any indication then the factory of the world is likely to face a contraction in demand; the Chinese economy estimated at around $12 trillion may be too big to fail, but not immune to shocks—forcing it to rethink its unilateral ways.

Yet a boycott of China will come at an economic cost to the world in general, and India in particular—another test of resilience for domestic businesses no doubt. The last few years have really tested their resolve as they have had to reinvent themselves so many times to survive systemic makeovers. First, there was the shock of demonetization of high-value currencies, then the introduction of the goods and services tax; more recently, the threat of the covid-19 pandemic forcing a nationwide lockdown—which still continues to be in place in states such as West Bengal. Decoupling with China will be yet another shock as a large chunk of Indian businesses have tied their economic destinies to our feisty neighbour.

A piece published in Mint on 4 June revealed that China accounted for a little over one-third of foreign value-added contributions to India’s exports—the country with the largest share. Similarly, in select sectors of the domestic consumer economy, such as telephone handsets and solar power, Chinese companies have a dominant presence.

To be sure, given the current circumstances, there is no alternative for India but to develop its own capabilities. In an extremely chaotic and volatile world where the maxim is ‘enemy’s enemy is my friend’, it makes eminent sense to build up economic and military independence. I remember Vijay Kelkar, former finance secretary and chairman of the 13th Finance Commission, saying that the best defence for India is to develop a strong Indian economy, and that we should do whatever it takes; ironically, China commands global respect precisely for this reason. Presumably, the idea of ‘atma nirbhar’ will provide the ideology to draw up the blueprint for a resilient Indian economy.

It would be prudent to pursue this decoupling with a transactional mindset—think with the head and not the heart, especially when the nation is seething at the martyring of its soldiers. Even tougher, given that unlike China, the Indian government has to deal with the attendant characteristics of democracy; while most political parties have rallied behind the government there are stray voices who can pose a distraction and, more importantly, send confusing signals—a legitimate fear given that the Chinese have over the last six months shown their penchant for misreading the tea leaves.

In the final analysis, it is clear that the die is cast. However, the form and shape of this decoupling exercise will also have a bearing on the Indian economy, as well as the regional polity in Asia.

Anil Padmanabhan is managing editor of Mint and writes every week on the intersection of politics and economics.

Comments are welcome at anil.p@livemint.com

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