Trade curbs signal decoupling from China


India’s order on Thursday, restricting purchases for large public projects (and even those being developed as public-private partnerships) from companies in countries that share a land border with it, citing national security concerns, is aimed at China, and, according to three government officials familiar with the thinking behind the order, will also deter private firms here from dealing with Chinese companies.

This is a well thought-out move that will also deter all state-run banks and financial institutions from funding any public sector or private sector projects with direct or indirect connections with China, the officials added. “Thursday’s decision is certainly a retaliatory actions against Chinese aggression with wide-ranging impact. Even Indian states will stop procuring Chinese goods and services,” one of the officials said. The order is the latest in a series of moves aimed at reducing the penetration of Chinese commercial interests in India.

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In April, India removed Chinese investments from the so-called automatic approval route fearing takeover of Indian firms at a time when the country was fighting Covid-19.

The country also reacted to Chinese aggression in Eastern Ladakh in June in which 20 Indian soldiers and an unknown number of Chinese soldiers were killed. On June 29, the government announced ban on 59 mostly Chinese mobile applications, citing concerns that these are “prejudicial to sovereignty of India, defence of India, security of state and public order.” 

State-run BSNL was asked to keep Chinese suppliers out of its 4G upgrade project and it is likely that Chinese company Huawei, which has already been proscribed by some western nations who fear the data security of their citizens may be compromised.

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Thursday’s order will also bar, direct or indirect Chinese participation in strategic sectors such as power, petroleum, coal and telecom, the first official said. “In fact, some public sector companies are even contemplating taking legal opinion, how to scrap tenders already awarded to Chinese firms,” he added.

Already the work at ~13,277 crore Talcher fertiliser and coal gasification project, which was awarded to Chinese firm Wuhuan Engineering Co Ltd last year, has been halted. HT reported this on July 7.

Without directly naming China, India has also been raising its issues with the country at various forums. At the BRICS trade ministers’ meeting, commerce and industry minister Piyush Goyal called upon the members to build “trust” to prevent losing their role of pre-eminent trade partner, a message that was meant for China, the second official , who works for an economic ministry, said. “Brazil, Russia, India, China and South Africa are BRICS members and barring China, the issue of trust-deficit does not arise with any other members,” he added.

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The first official said the Union government is cautious and plans to discourage states from using Chinese equipment and technology in the strategic power sector projects. It may even direct state-run financial institutions focused on the sector, Power Finance Corporation Ltd (PFC), Rural Electrification Corporation Ltd (REC) and Indian Renewable Energy Development Agency (IREDA), to withhold financing to such projects that are based on Chinese technology or equipment, he added.

Another major blow to Chinese companies would be their exclusion from implementing the government’s ambitious world’s largest smart metering project on security grounds, he added.

A third official, who works in another economic ministry said, the government is considering duty protection against Chinese imports. There is a proposal to impose a basic customs duty (BCD) on all imported solar cells, modules, inverters and their components. HT reported on May 11 that India could also extend anti-dumping duties and safeguards on at least two dozen Chinese goods amidst concerns that a flood of imports would kill domestic manufacturers .

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These need to be accompanied by “hard power” messages, an expert said.

Anupam Manur, assistant professor at the think tank Takshashila Institution, said, “The banning of apps and stopping of procurement from China is merely signals of intent and posturing, but when these are not accompanied by actions and show of power, such as a counter-offensive somewhere along the border or building our maritime power in the Indian Ocean and South China Sea, these signals will lose credibility. The reality is that Beijing cannot be deterred without the use of hard power.”

Samir Kanabar, tax partner at consultancy firms EY India said, “One would have to evaluate if the Order will delay the bidding process resulting into delay of large infrastructure projects.”

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