Line of Actual Decontrol

Context: In light of recent standoff with China, there is a need to go beyond trade barriers and diversify our import basket in order to reduce dependence on China.

India’s view of Trade and Globalisation: As opposed to Adam Smiths’ argument that defense is of much more important than wealth, India pursued policies complementing both.

• Growth with Economic reforms: 

• More competitiveness in the domestic industry was achieved.
• Higher growth rates pulled millions of citizens out of poverty.
• Globalization led to an upswing in global trade which helped India to clock growth of 8 plus % a year in the mid-2000s- India became the world’s fastest-growing economy.

• Putting weight on geopolitics: Spectacular growth of India catapulted it into the global league; For E.g. India’s advice was sought and incorporated in the G20 final declaration.
• Economic prosperity – Bone and Sinew to national security: After the 1991 financial crisis growth through openness remained the sine qua non of national security.
• Merchandise export quintupled between 2003-04 to 2013-14.

Failure of India’s trade policy:

• Neglect of diversification of imports: India avoided trade deals with other countries or blocs in the recent past and focussed on increasing the tariffs across segments.
• No link between trade and industrial policy: The composition of the basket of imports from China over the last decade shows nothing has changed.

• Top five imports from China: Electronics, machinery, organic chemical, and iron & steel remains the same.
• The concerns related to disruption in supply chains especially in sensitive sectors like Active Pharmaceutical Ingredient (API) has neglected.

Way forward: Since the recent trade sanctions and a ban would hardly affect China, India should rethink its strategy.

• Work for the broader coalition: among big economic powers, including the US, Japan, UK, and Australia.

• Reduce ‘Regulatory Cholesterol’: Rationalization of complex labour laws should be pursued.

• Redefining engagement with China: Imperative of higher growth should dominate the trade policy with the promotion of more globalization and not less.

• China should not be viewed in the relationship of binary friend or foe, particularly since it shares a 4,056 km long border.