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The Economics of simmering Indo-China tensions

Updated: Jul 31, 2020

- By Chanpreet Singh|

The tensions between china and India are high at LAC however the concerns do not end there. Following this dispute is the economic impact of souring relationship between the two countries.

China is amongst India’s largest trade partners. Out of 81 billion dollar worth of two way trade, Indian imports from China in 2019-20 reached 65 Billion. The border clashes and cold vibes between the two nations has reignited questions about dependence on Chinese goods and services and has fuelled India’s nationalistic turn. This lead to India banning 59 Chinese apps including Tik Tok, Share it, UC Browser, Cam Scanner and others. These steps may have far reaching consequences on Indian as well as Chinese economy.

According to Brooking India, total amount of current and planned Chinese investment in India has crossed 26 billion. Moreover, more than half of India’s 30 unicorns have Chinese investors. Several large Chinese electronics and mobile phone manufacturing companies have deeply invested in India’s consumer markets and have embraced Prime Minister Narendra Modi’s Make in India programme. For instance Xiaomi locally manufactures 95% of the mobiles it sells in India thereby creating job opportunities. Hence any adverse announcement forcing Chinese business to shut down in India will lead to sharp rise in unemployment rate.

While, it is perceived that India will be most impacted in case of a tussle with China, the latter will also go on to lose its easily accessible markets.

In order to alleviate this economic fallout, India must harness its dominant domestic market adequately, which will in turn help in building a resilient manufacturing sector, thereby reducing dependence on countries like China. India can also improve the productivity of its labour by investing in various skill enhancement programmes. Further the country should strive towards removing all kinds of infrastructural impediments and supply chain constraints in order to make it a global investment destination.


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