Govt must trust firms for a competitive India

The government has sent a clear message that the Chinese goods and investments will face discriminatory treatment in retaliation against the incursions of the Chinese army at the Ladakh border. This means more uncertainties for the Chinese firms operating in India and those importing goods from China. 

Even before the face-off at the Galwan Valley at Ladakh, the government had taken a decision remove all Chinese investments from the automatic route and subject them to specific government approval. After the bloody clashes at the border, the Railways cancelled the contracts of some Chinese parties. State-owned telecom companies cancelled the tenders that allowed Chinese companies to participate.

A decision to keep Chinese companies out of highway construction contracts was announced. The Customs delayed clearances of goods imported from China by subjecting them to higher levels of examination. And last week, the apps of 59 Chinese companies were blocked. The indications are that more such actions will be taken against Chinese firms and goods coming from China. How far these measures will affect the Chinese economy is far from clear. It is nearly five times larger than the Indian economy. Of course, the individual Chinese firms are likely to lose easy access to the large Indian markets. That may not be enough to make the Chinese government soften its position at the borders. Last week, the efforts to defuse the tensions at the borders through top-level military and diplomatic talks failed to end conclusively.

It is, however, clear that that barring Chinese companies from participating in tenders for infrastructure projects or barring their internet companies from operating in India or making it difficult to import goods from China through policy or enforcement measures will mean higher costs for India. As the noted economist Rathin Roy points out, most products that we import from China can be manufactured in India or imported from other countries but at a higher cost. Also, most Chinese investments are in non-strategic areas. So, loss of such investments need not have a debilitating effect on our economy.

So, it is a question of willingness to bear the higher costs for the products and infrastructure that we need. At the moment, many people in India are willing to pay the price rather than give in to Chinese pressure tactics. The overall sentiment is to let the Indian entrepreneurs step in to make the products that we now import from China and build the infrastructure we need. Many see this as an opportunity for Indian entrepreneurs. Anand Mahindra, a leading industrialist, has said the Indian businesses will rise to the occasion.

It is, however, necessary to take note that Chinese products are cheaper because of huge scales of production and higher productivity through better infrastructure, besides other factors. So, our entrepreneurs have to build factories that have the advantage of scale and make niche products that are globally competitive. For this, Uday Kotak, the head of Confederation of Indian Industry, points out they have to raise capital, which means sharing ownership. S N Subrahmanyan, the chief of Larsen & Toubro, says we can reduce our dependence on products from China by developing a large-scale, efficient and cost-effective domestic industrial ecosystem. On its part, the government must trust its entrepreneurs and businesses to build a competitive India.



Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel