Covid-19: Can it be the Sputnik Moment for India?

History often tells us that the best in you comes out in the worst of circumstances. At times devastations caused both by man and nature has impelled people and nations to rebuild from the ruins. There is no dearth of instances when people have risen to the occasion and turned challenges into opportunities in the Darwinian instinct of ‘survival of the fittest’. The outbreak of Covid-19 has inflicted colossus damage to the world economy including that of India due to protracted lock down. There is hardly any sector which is not affected by the pandemic. But the way the government, the political class, the bureaucracy, the defence services, the industry, the corporate sector, the media and the civil society have responded to the clarion call of Prime Minister Modi is unprecedented in the contemporary history of the country and will remain as a land mark of the nation’s solidarity, capacity, resilience, resolve and fortitude of the people

The outbreak and spread of Covid-19 and its devastating consequences is also likely to have its resonance on the complex India-China relations, particularly in economic dimension. It is an opportunity to recalibrate and re-configure India’s economic engagement with China for a truly win-win situation. India-China economic engagement including bilateral trade and investment constitute a significant aspect of the dynamic relations between the two countries. Over the years the economies of the two counties have been intertwined to a great extent taking advantage of their complementarities. However, the galloping trade imbalance has been an issue of major concern between the two countries. According to the figures available on the website of Indian embassy in Beijing) in 2018 India’s imports from China grew by 12.89% to the US 76.87 billion while the trade deficit widened to US$ 58.04 billion. For the year 2019 from January to November for which the figures are available, the trade imbalance is US$51.68 billion. ¹

Chinese products starting from fruits like apple, firecrackers during the festival of fire (Diwali) to smart phones dominate the Indian markets. The popular resentment against such dominance is increasingly becoming louder particularly by small traders and manufactures. Now, there is a policy perspective to protect the domestic industry from cheap imports, bulk of it from China. It also aims at augmenting employment opportunities, an imperative in poor job market. Presently the government is committed to provide a level playing field to the domestic manufacturer. The provisions for checking dumping of goods and imports of subsidised goods are also being strengthened for ensuring level playing field for domestic industries.

While there has been resentment against dumping of Chinese goods, the Covid-19 and its debilitating impact have cast a shadow on the desirability of country’s reliance on China particularly in two sectors- pharmaceuticals and telecom sector. The persistent security dilemma further exacerbates the trust deficit between the two countries. India’s non- acquiescence of China’s ‘Belt and Road’ initiative is a clear indication of this kind of thinking. What we have today is a ‘contrived strategic partnership’ between the two counties characterised by the cliché, ‘cooperation, coordination, and competition’. Often the leaders have claimed that the convergence of their mutual interests outweigh their divergences. This seems to be losing its steam.

Although it is in the interest of the two countries not to disturb the apple cart of the trade and economic engagement between them, in recent years there has been a studied realisation that there is a need to insulate Indian economy from dependence on China, specifically in the case of bulk drugs and telecom equipment like routers and network gear. Certain major decisions of the government after the outbreak and spread of the pandemic in the country are pointers in this direction.

As far as pharmaceutical sector is concerned, although India is a source of 20% of the world’s generic drugs supply, pharmaceutical companies in the country are dependent on China for two-thirds of the components needed to make them. India relies on China’s Hubei province alone which supplies 60 per cent of India’s Active Pharmaceutical Ingredients (APIs). India currently imports APIs worth Rs 42, 000 crore and exports worth Rs 32,0 00 crore² . During the current crisis of virus outbreak in China and subsequently its spread to India, India’s pharmaceutical industries suffered as the supply chain from China was disrupted. Efforts are currently afoot to restore the supply chain while at the same time exploring the import of such APIs from other countries like Israel and other friendly countries. The export of such drug ingredients has also been restricted in the wake of the outbreak of the pandemic in India, which was partially withdrawn recently to enable India to supply hydroxychloroquine on humanitarian ground to USA and few other friendly countries.

It is in this context that India would like to be less dependent on China on import of the APIs. The delicate relationship between the two countries has also lent greater urgency for indigenous production of these ingredients. The Cabinet on 20th March approved two policies to promote production of Active Pharmaceutical Ingredients (APIs) and manufacture and medical equipment to meet increased demand due to the Covid-19 outbreak. The government has set up an inter-ministerial committee to look into how India can produce more APIs in the country. Cabinet approved incentives for setting up ‘Medical Device Parks’ across the country to boost domestic manufacturing of medical devices, key starting materials, drug intermediaries, besides Active Pharmaceutical Ingredients.

India’s telecom sector is also dominated by the Chinese telecom companies such as Huawei, ZTE and UT starcom. Government projects in India use telecom gear in areas such as railways, smart cities missions and fibre connectivity projects. Ever since the present BJP government came to power in 2014, the government has been taking policy initiative to encourage and incentivise domestic production of telecom equipment. The Public Procurement Order 2017³ envisages that if a nodal ministry is satisfied that Indian suppliers of an item are not allowed by to participate and/or compete in in procurement by any foreign government, it may, if it deems appropriate, restrict or exclude bidders from that country for being eligible for supplying that item and/or other items relating to the nodal ministry.

The move is likely to hit the Chinese companies that may not be allowed to participate in government projects. The notification was issued a few days before the visit of US President Donald Trump to India on 24-25th February this year. Trump has claimed that Chinese equipment suppliers pose a national security risk.

To realise the intent of the government, the Union Cabinet on 20th March this year approved three new schemes worth over Rs 48,000 crore to promote large scale electronics manufacturing, electronic components and semiconductor manufacturing in the country. The government has decided to provide production-linked incentive to global and domestic companies engaged in manufacturing, assembly, testing, making and packaging of mobile phones as well as certain specified electronic equipment. The second scheme provides for setting up of electronics manufacturing clusters spread over minimum area of 200 acres in the plains and at least 100 acres in Northeast India in which case they will be given an additional financial assistance of up to Rs 70 crore per 100 acres. The third scheme will provide a financial incentive of 25 per cent on capital expenditure for making goods that constitute the supply chain of an electronic product. ⁴

India has been depending on China for supply of generic drugs and telecom equipment for cost effectiveness neglecting domestic production of such equipment in the country. Now, there is a realisation that it makes sense to go for huge investments in these two key strategic sectors for indigenization of production of both the generic drugs and telecom equipment. In the short run, it may be an expensive proposition, but in the long run, it will be beneficial.

End Notes

1. India-China Trade and Economic Relations,https://www.eoibeijing.gov.in/economic-and-trade-relation.php
2. Cabinet gives boost to domestic manufacturing devices, The Indian Express, 22 March 2020, https://indianexpress.com/article/india/cabinet-gives-boost-to-domestic-manufacturing-of-medical-devices-6326026/ [3]
3. https://pib.gov.in/newsite/PrintRelease.aspx?relid=165658 [4]
4. Cabinet okays 3 schemes worth Rs 48k to promote electronics manufacturing, The Indian Express, 22 March 2020, https://indianexpress.com/article/business/economy/cabinet-okays-3-schemes-worth-rs-48k-crore-to-promote-electronics-manufac [5]

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