Vantage | How India should deal with trade-partner and security-threat China

It is a very tricky situation for New Delhi. China is a security threat, but it is also a key trading partner. Almost 14 percent of India's imports come from China. When the Galwan clashes happened in Ladakh in 2020, India-China ties hit a new low. New Delhi tried to reduce its dependence on China, and one method was tariffs. But has it worked? Reports say some government wings don't think so. They want New Delhi to reconsider its policy and maybe try a more nuanced approach.

First, Indian tariffs are much higher, and second, it is affecting Indian businesses. A lot of Chinese goods are not directly consumed in India. Assume, if the inputs become more expensive, your production costs will rise, along with the final price of your product. That's what's happening now. Multiple departments have flagged this issue.

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So the clear message is to ease off on the tariffs, but here's the problem. India's dependence on China is increasing. In 2023, bilateral trade hit a new record—around 136 billion dollars. This trade is stacked in China's favour; the deficit is almost 100 billion. In that context, how can India reduce tariffs? If it does, the deficit could widen.

The scale of China's supply chain game is such that you simply can't operate without it. For example, India has rolled out a scheme to boost local production called production-linked incentives, and out of 12 companies that won contracts under this scheme, 11 of them have Chinese suppliers.

Even while diversifying away from China, you can't escape it. So India has to work around it and maybe look for alternative sources, invest in new supply chains, or look for inputs inside India. Of course, these are long-term projects; it could take years, if not decades, to complete them. Until then, we need clarity.

Just take the case of Pakistan. India's policy is crystal clear—trade, talks, and terror cannot go hand-in-hand—but with China, that clarity is missing.

Going forward, more questions will be asked. This is because the world is looking at India as the global growth engine to maybe replace China. How will that happen if India itself cannot abandon China? Most experts agree that India has arrived—it has a very large and young population, it is not sanctioned like China, and it is also a democracy. That puts India in a pole position to challenge Beijing; all we need is clarity and patience.

Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect Firstpost’s views.