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Is India targeting China for “self-reliance”?

Is India targeting China for "self-reliance"?

In the middle of this month, the Regional Comprehensive Economic Partnership Agreement (RCEP), which has been negotiated for eight years, was officially signed. Since the vast majority of signatories are Asian countries, some media say that “Asia constitutes the world’s largest trading organization”. But the absence of India, Asia’s third largest economy, is unusually eye-catching and has become a hot topic.” Not all agreements are in the interest of India. Indian Foreign Minister said so. Some analysts believe that not joining RCEP is a echo of India’s “self-reliance” national policy proposed six months ago. Since the introduction of the policy, many people have associated it with China, believing that it is aimed at China. In fact, is that true?

“Self-reliant India” needs to become the “mantra of 1.3 billion people”

In mid-May, amid the coronavirus raging, Indian Prime Minister Modi made a national television speech announcing the launch of a huge economic stimulus plan, emphasizing bold reforms to take advantage of the opportunities brought by the epidemic to make India a “self-reliant” economic powerhouse.

For more than half a year, “self-reliant India” has become a high-frequency word for local officials, media and think tanks, and has long occupied the top ten of India’s social media hot topics. In subsequent public speeches, Modi almost said “self-reliance”. At the Independence Day commemoration on August 15, he said that “‘self-reliant India’ will no longer be just a word, but a mantra of more than 1.3 billion citizens”. Since then, Modi has further refined the concept of “self-reliance” policy, explaining that “self-reliance is not a closed-door car, but a more open development, reducing India’s dependence on the world economy, and making India a new driving force for the recovery and growth of the world economy”.

It is not difficult to find that the “self-reliance India” policy actually has two sides: on the one hand, it reduces external dependence and encourages localized production and procurement, with the goal of improving the development layout of the whole industry and industry as soon as possible; on the other hand, it strives to seize the commanding heights of the global supply chain in the “post-epidemic era”. These two sides outline the face and ambition of India’s future industrial development.

In an interview with Global Times, Ranad, a former member of the National Security Council of India, said, “‘Self-reliant India’ is a strategic choice made by the Modi government in response to India’s domestic economic situation and the current industrial situation.” In fact, India’s economy has entered a downward range since 2018 or even earlier. The economic growth rate has slowed down, unemployment is high, and the government debt is high. The coronavirus epidemic has further amplified India’s economic predicament. Especially after more than three months of “national blockade”, India’s economy has worsened, production activities have almost stagnated, and there is an urgent need to boost economic growth by promoting domestic industrial development.

At the same time, the epidemic has exposed the dependence of many industries in India on China’s supply chain, especially APIs, auto parts, electronic product components, etc. China’s short shutdown and production restrictions have had a direct impact. The subsequent border confrontation and conflict further prompted the Indian government to reflect on the long-standing problem of “industrial dependence”. In a sense, “self-reliant India” is the product of this reflection, which is reflected in the fact that on the one hand, it seeks to diversify import channels to replace the existing “China’s supply chain”, and on the other hand, it tries to force India to develop a whole industrial chain model by setting up trade barriers.

It needs to be seen that reducing dependence on China’s supply chain should only have the objective effect of “self-reliant India”, because the Chinese factor was not the full motivation of the policy at the beginning of the policy. However, this can partly explain why India insists on withdrawing from what it considers “China-led” RCEP. Moreover, although Indian officials said that “self-reliance” was not targeted at any country, the policy was inseparable from nationalist sentiment in India, where some right-wing organizations pressured or choked the Modi government to exclude Chinese enterprises from participating in certain commercial projects.

The United States is an external factor that has to be mentioned. After the Trump administration provoked a trade war with China, India has always hoped to profit from it – whether it was previously “Mao Sui” to hope that China would buy soybeans and other agricultural products from India, or attracting foreign companies in China to transfer their industries to India. India’s Economic Times previously disclosed that the Indian government has initially identified about 460,000 hectares of land for enterprises to undertake emigration from China, and instructed its embassies and consulates abroad to closely contact foreign business owners who are “intentionally” to go to India. Recently, India’s Tribune also quoted sources as saying that India, Japan and Australia have proposed a “supply chain flexibility plan” and strengthened communication with ASEAN countries to this end.

In view of this, the foreign policy of Biden after the “president-elect” of the United States will also greatly affect the fate of India’s “self-reliance” policy. Indian strategic circles generally believe that Sino-US tensions will ease after Biden takes office. Once the centripetal force in Sino-US relations is strengthened enough to offset the United States’ doubts about the security of global supply chains, then Modi’s first-hand “supply chain battle” chess game under the “self-reliant India” policy is likely to rush to close. Venue.

Competitiveness ranks 68th in the world, how to “self-reliance”

“Self-reliant India” encountered a lot of “comment” at the beginning of the proposal. Since Modi announced the policy in Hindi, the mainstream media have since disputed whether to use “self-reliance” or “self-sufficiency” for English translation. Finally, combined with the official definition later given by the Indian Information Bureau, the Indian media chose “self-reliance” as the standard translation.

After “honority is right”, the question becomes whether this policy can play an expected role. In the past, many experts here are worried about India’s return to the old path of “planned economy model”. Indian economist Ayar said that Modi’s policy inevitably reminds people of the “self-sufficiency” attempt made by Nehru and Indira Gandhi. “They failed, resulting in a double in the number of poor people in India’s 30 years after independence”.

Ayal believes that the contradiction of the “self-reliant India” policy lies in reducing external dependence and imports while integrating into global supply chains and value chains. He said that India is only 68th in the global competitiveness index ranking. “How do you think India can achieve self-reliance?” In his view, India’s high cost of land and labor, high taxes, electricity and freight costs, and if these can be reduced, India will become more competitive, which in fact has little to do with whether to implement a “self-reliance” policy.

The top leadership of India’s opposition Congress Party has also repeatedly criticized “self-reliant India” as “new bottles of old wine”, which is an escalation or continuation of the “Made in India” policy proposed by Modi’s first term. The reporter of Global Times has similar doubts. Jawadi, who has long studied Indian Party policies, explained to reporters that “Made in India” is to promote India’s products and services to the world (the picture below shows India’s promotion of “Made in India” in Hanover, Germany in April 2015). “Self-reliant India” is broader, which can be understood as “Indian people for India and the world. Manufacturing products and providing services”. However, Javadi admitted that the two overlap in some aspects.

According to the reporter’s observation, “Self-reliant India” is not a simple slogan, but a combination policy that attempts to achieve overall development by promoting multi-field reform. Modi has repeatedly said that to achieve “self-reliance”, it requires vigorous reforms around land, labor, finance, education, skills training and law. So far, the Indian government has announced a series of economic reform policies, involving agriculture, national defense and other fields.

In agriculture, the Modi government vigorously pushed forward a new law to expand farmers’ free choice when selling agricultural products by removing local inter-state trade barriers and providing electronic trading platforms, and introducing a new contract agriculture model. In terms of national defense, the Indian arsenal system has been grouped and corporateized. In order to attract foreign investment, the proportion of automatic approval of foreign direct investment entering the defense sector increased from 49% to 74%, which is equivalent to expanding market access. In addition, Uttar Pradesh, Gujarat and Madhya Pradesh have temporarily relaxed labor laws, and the enterprise employment system can be more flexible.

Taxation, labor and land are the three major issues affecting India’s economic development. The core of the “five pillars” of economy, infrastructure, technology, labor and domestic demand put forward by the “self-reliance India” policy is precisely to completely eradicate these three persistent diseases and lead India on the fast track of economic development.

The vision is beautiful, but can India afford to wait?

In the case of RCEP, it is not surprising that India finally chose not to join. The website of U.S. Foreign Policy said on the 23rd that India’s past experience of participating in free trade agreements has reinforced its ideological narrative of the importance of “self-reliance”. While the [India] government’s own research suggests that India has generally benefited from trade agreements signed in the past, critics point to another result – India’s trade deficit with several RCEP countries.”

Indeed, after signing free trade agreements with Japan and South Korea, India’s trade deficit with these economies has increased significantly. After Modi came to power in 2014, he boycotted the “Bali Package Agreement” reached by the WTO the previous year and refused to sign the Trade Facilitation Agreement established on this basis for fear of adversely affecting its agriculture. All of these impressed India’s “exclusion” of international treaties. At the same time, as the Financial Times recently said, “any club joined by India is usually unable to agree on the rules.”

However, international agreements are not the key. According to the analysis, “self-reliant India” mainly faces three major tests. First of all, whether the deteriorating fiscal situation of the Indian government can play a supporting role. How to crack the sharp tax decline caused by the epidemic and how to guide the three rounds of economic stimulus policies to flow funds into target industries efficiently and are unavoidable questions.

Secondly, whether India’s domestic vested interests will prevent the Modi government from using “self-reliant India” to promote key issues in the reform process. Third, the epidemic has caused a large number of enterprises in India to be in a difficult situation and can not afford to bear the high cost challenges brought about by reducing their external dependence.

An earlier article in India’s Economic Times said that the policy vision of “self-reliant India” is beautiful, but it will take at least 10 years to truly achieve the goal of promoting reform and the whole industry chain. But looking at India’s economy, market and the status of its participants, I’m afraid it won’t wait for 10 years.

Agawal, an official of the Central Bank of India, told the Global Times that the “self-reliant India” policy has attracted widespread discussion or criticism, mainly because it is more medium- and long-term, but the damage caused by the epidemic to the Indian economy and the problems previously accumulated by the Indian economy require a shorter and more rapid response. Even though Indian Finance Minister Sitaraman launched three successive rounds of economic stimulus plans under the policy framework, nearly half of them appeared in the form of loans, guarantees or liquidity injections, which objectively had limited impact on India’s economic recovery in the “post-epidemic era”.

An anonymous source of the Indian government also told the Global Times that the “self-reliant India” policy pays more attention to the far-term effect. The deeper intention behind reducing dependence, encouraging localized production and competing for the dominance of the global industrial chain is to strengthen India’s macroeconomic fundamentals and prevent sovereign credit rating. It was further downgraded while strengthening the resilience of India’s economy under the potential second or even third wave of the epidemic.

Judging from the situation in the past six months, many people are not optimistic about the effect of India’s “self-reliance”. Indian media person Kunar Proshi wrote on November 22 that Modi said that he wanted to make India “self-reliant”, which was widely regarded as a move to reduce India’s dependence on China, but this effort seemed to be in trouble. He wrote that the newly released official data shows that China’s share of India’s overall imports increased from 13.7% in the previous fiscal year to 18.3% for the six months before September in the current fiscal year.” Modi’s slogan may be catchy, but it is difficult to put into action.

It will take time to prove the ultimate effect of India’s “self-reliance” policy. But to be sure, for the Indian government, market entities, financial institutions, etc., every step in the future may be difficult, but it is not allowed to lose.

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