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India’s New Trade Curbs With China, US-China Conflict Vital For India

India slammed new trade restrictions on some of its neighbors, in a movement primarily seen aimed at keeping Chinese businesses out after a border conflict and worsening economic ties between the two nations.

The measure is the latest in a series of steps taken by Prime Minister Narendra Modi’s government to ablactate India away from reliance on China — New Delhi’s biggest source of imports. Earlier, the administration banned the use of 59 Chinese apps, while goods purchased from China were delayed at Indian ports after a deadly conflict between the neighbors along a disputed Himalayan border left several soldiers dead on both sides.

Companies from nations that share a land border with India are barred from bidding for government contracts for goods and services until they register with the industry department, according to an official statement. Previously, New Delhi had made it mandatory for supplier companies to mention the country of origin on the government’s e-Marketplace (Flipkart, Amazon, etc.) while bidding for tenders.

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India’s move to firewall key sectors from Chinese presence signals that the south Asian nation is willing to bear costs in the short run in order to reduce exposure of critical sectors, said Harsh Pant, a professor of international relations at King’s College London. “Such moves are a calculated response to shape Chinese calculus on the border issue which is getting serious by the day in the absence of any commitment by the Chinese to resolve it amicably.”

The development comes at a time when both the nations are engaged in talks to defuse a border stand off. India on Thursday said it expects the Chinese side to be sincere in completing the disengagement of troops along the Line of Actual Control.

A spokesman of the foreign ministry did not immediately respond to a text message whether recent curbs are aimed at China while a spokesperson of the prime minister’s office was not immediately reachable over phone during office hours.

Other key points from the latest move:

  • Norms have been relaxed in some cases, including procurement of medical supplies for containment of Covid-19, until Dec. 31
  • New rules to apply to all new tenders; in cases where tenders have already been invited, if the initial stage of evaluation of eligibility has not been completed, unregistered bidders will not qualify
  • Contractors won’t be allowed to even sub-contract to the unregistered entities from nations sharing a land border with India
  • Tenders will be canceled if the first stage of evaluation is complete
  • New norms to apply to state-run banks and and financial institutions, state-run companies and public private partnership projects receiving financial support from the government
  • State governments will also have to abide by the new norms, they can appoint the competent authority; political and security clearance is mandatory

The step of further tightening of rules for bidding process was taken as border disengagement and de-escalation are not moving in a positive direction, said Pant. “Tensions with China are already high with growing consensus in India that the Chinese Communist Party seems in no mood to diplomatically resolve the border crisis.”

India imported goods worth over $70 billion from China in 2019 while the bilateral trade deficit stood at about $50 billion, much higher than with any other trading partner.

US-China Conflict To Impair Global Trade Says, Raghuram Rajan

The former Reserve Bank of India (RBI) governor Raghuram Rajan said that there will be a weakening of the global trade due to the rising conflict between the US and China which is “crucial” for protruding markets like India and Brazil that are re-opening amid COVID-19 pandemic.

Cautioning that there will be “deeply damaged firms” in the economy, Mr. Rajan said the post-pandemic recovery has to be accompanied by a process of repair.

“There’s going to be enormous bankruptcies in the United States certainly and quite possibly in Europe also as we repair the economy, reallocate resources, restructure capital structures,” he said on Thursday at the PanIIT USA virtual conference titled ‘The New Global Economic Norm: Post CoVID-19’.

“Certainly as we get closer to the US election, the conflict between the US and China is going to increase and that impairs global trade, which is going to be extremely important going forward, especially for emerging markets like India, Brazil, Mexico, which are going to be significantly impaired by the virus and need some source of demand to pull them out as they start opening up again,” he said.

Former Chairperson of the State Bank of India and Salesforce India CEO Arundhati Bhattacharya also addressed the event.

“Global trade is going to be an important factor if they can jump on to it, whether it”s trade in goods and services or trade in digital services, it’s going to be very important and our countries desperately need an open world,” Mr. Rajan said.

Mr. Rajan, an IIT Delhi graduate and the Katherine Dusak Miller Distinguished Service Professor of Finance at University of Chicago Booth School of Business, said that containment of the coronavirus in countries like the US and India has not happened despite lockdowns, while in some countries containment has been a 2-2.5 month process and virus cases have been brought down to the single digits leading to re-openings.

“There are countries, of course, the United States being a prime example, but also India as well as Brazil, Mexico where the containment has not happened despite lockdowns, despite enormous costs. As a result, the cost of the virus is going to be significantly greater than for the countries that have been successful,” he said.

Mr. Rajan said that for countries like India and the US that are still battling the virus, the main issue right now is to contain the virus, even as he asserted that “unfortunately the spread has become significant enough that containment is going to be very difficult”.

“This creates an enormous amount of uncertainty because businesses don’t know whether there’ll be fresh lockdowns and how difficult they will be. Some states in the US are talking about fresh lockdowns, some states in India are talking about lockdowns and have actually sort of implemented some of those right now,” he said.

Raghuram Rajan also spoke about some of the trends that may emerge post-pandemic.

“There certainly seems to be greater value to working with minds than hands, especially as we go through the pandemic,” he said.

He noted that in developed countries, 45-50 percent of the population can work at home so that the countries can keep working even in the midst of lockdowns.

However, in poorer and developing countries and emerging markets, the number of people who can work at home is much lower, he said.

“As a result, lockdowns have been much more damaging to livelihoods, to economic progress and many in the lower middle class have slipped back into poverty in these countries. There”s a number of years that we’ve lost in terms of economic progress,” he said, adding that for going forward, there will be more emphasis on education and digital technology.

Mr Rajan also underlined that there will be greater automation of work processes. “Many companies are figuring out how to do things more efficiently during this crisis and that will stay on going forward, which also means that we will have to redeploy workers, we will have to figure out how to do that more effectively and certainly re-training is part of the answer,” he said.

Mr. Rajan cautioned that corporations, households and governments will have enormous levels of debt as they move out of the pandemic and there will be a lot of focus on how to restructure and bring it down over time.

“The bad debt problems of banks then and the bad debt problems that are likely to emerge for banks across the emerging world is going to be a multiple of what it was in the past and this implies that we need to spend far more time on creating restructuring processes so that firms get back to work and production.”

“If we don’t focus on the problem of repairing the capital structures of these firms, we”re going to have much slower growth, many more problems down the line. So this is something that policymakers need to think about” he said.

Customers are turning to more frugality and savings and there will be more pressure for universal good healthcare as a result of this crisis, Mr. Rajan said.

“We’ve seen the consequences of having inadequate healthcare system, not just in the United States but also in places like India,” he said

“There’s going to be much more of a need for capable governments. We’ve seen what government incompetence can do and that has been problematic. There is going to be much more support in public for more capable governments but also more support for regulation,” he said, adding that there is probably going to be more resistance to globalization.

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