As the border wars between China and India continues to rage, now may be the time for India to look inward, developing a level of self-reliance not yet seen in the country, as well as discovering trade opportunities with like-minded countries recovering from COVID, including Australia.
India’s economic dependence on China in key sectors of its economy such as pharmaceuticals and electronics has been a growing concern for the Indian government. However, it has taken a global pandemic and serious flare-up
of the India-China border conflict to force more concerted action to decouple from China.
Earlier this year, amidst the devastation of COVID-19, the Indian government tightened
its foreign direct investment (FDI) rules, requiring all countries sharing a land border with India to go through a government approval process. In May, following of the deaths of twenty of its soldiers in a confrontation along the contested border, India banned fifty-nine popular Chinese apps on the basis that they were transmitting user data to servers outside of India, thereby violating users’ privacy and jeopardising
India’s sovereignty and integrity.
The Modi government’s ‘Atmanirbhar Bharat App Innovation Challenge’ was announced
in the wake of these bans, with Indian companies urged to develop home grown apps. This was supported by a later announcement
in June by Minister for Power, R.K. Singh introducing more import duties on solar modules, most of which are imported from China, while domestic companies would gain access to cheaper financing for using domestic suppliers. A scheme worth $6.65B USD was also introduced
to increase domestic electronics manufacturing.
This is not the first time India has turned to a protectionist approach, focusing in on self-reliance.
In the 1960s, the United States attempted to use India’s dependence on its food aid to compel India to undertake economic reforms and alter its foreign and defence policies. In response to the negative public reaction to this coercive economic statecraft, the Indira Gandhi government shifted funding into agriculture to ensure national food self-sufficiency. Likewise, the origins of India’s software industry lie in a policy turn toward technological autonomy following the India-China war in 1962, China’s nuclearisation and the US embargo on advanced technology following the India-Pakistan war in 1965.
The question remains, will India’s most recent response to geopolitical pressure create a more self-sufficient country. Does the Modi government’s ‘Atmanirbhar Bharat Abhiyan’ have the potential to transform India’s economy and is it avoiding the problems faced by these previous quests for self-reliance? A closer examination of the program with respect to electronics manufacturing – a sector that is particularly important to strengthen if India is to decouple from China – raises doubts.
Some of the issues which exist for India is whilst one of the government’s strategies is to promote export-orientated, high volume, low cost manufacturing, India is unable to rely on this manufacturing path, unlike China and other East-Asian states, as profit margins have continued to plummet due to low sales of consumer goods such as computers and smartphones. This fall in sales is expected to continue post COVID-19.
India also faces aggressive competition in low-cost manufacturing from countries such as Vietnam, to which it has already
lost lucrative manufacturing projects. Technological advances such as additive manufacturing (3D printing) are likely to reduce production costs in the future, shifting manufacturing to consumer countries like the United States and China which are investing heavily in advanced manufacturing technologies.
In an increasingly fractured global environment, India has sound reasons for pursuing self-reliance in critical areas like electronics manufacturing and pharmaceuticals. To have sustainable and long-term benefits however, the push for self-reliance has to be undertaken in a comprehensive way that links industrial, investment and social policies. Such a policy shift requires recognition of the interlinked nature of the economic and social crises India now faces and the crucial role that public investment must play in resolving them.
Dr Priya Chacko is an Indo-Pacific Fellow and has recently written 'Can India decouple from China? Geopolitics and the bid for self-reliance'
for the Perth USAsia Centre which further discusses this issue.