IMA Analysis

Thursday June 25, 2020

Quandary of Conflicting Interests

Speaker:  Adit Jain, IMA India June 2020

A quandary of conflicting interests

A quandary of conflicting interests is hard to resolve. There is debate within various sections of the government on whether to bring economic and trade issues into the equations that govern India’s China strategy. On the one hand, defence hawks are adamant that the approach should be all encompassing, with every aspect of the relationship under consideration. This would include security, respect for territorial boundaries, investment and trade. Public opinion may be biased towards this argument and some go so far as to suggest that the Government would appear weak if it continues to avoid a meaningful economic response. They argue how imprudent India must appear in a situation where the Chinese benefit from a USD 70 billion per annum export opportunity and yet continue to violate territorial integrities and the sanctity of international borders. The political fall-out for the ruling BJP could be damaging, as it would appear submissive and feeble.

On the other hand, there are pressures from certain ministries and lobby groups, which argue that the border situation should be resolved separately from trade and the two cannot be entangled. India is dependent on Chinese supplies, specifically in the electronics and communications sector. Trade restrictions will be domestically damaging. In addition, the bulk of India’s consumer electronics imports are from China. Joining this bandwagon are the start-up industries, which have received masses of Chinese venture capital. Apparently, 18 Indian unicorns out of 30 are Chinese funded.

The fact is, recent encroachments aside – where China has once again, consistent with its tested salami tactics, occupied tracts of Indian territory – the bulk of the Aksai Chin region in Ladakh was occupied during the 1962 war and never returned. The current intrusions are surprisingly in areas that were not under dispute. The hawks argue that if India were to take the submissive posture then the Chinese would only feel encouraged to press further claims across a line of control that extends over thousands of kilometres. They further insist that even Nepal, now under a communist government, has upped the stakes on tiresome border issues, under Chinese persuasion.

It is true that India cannot afford a conflict with China, whose defence budgets are several times higher and with better border infrastructure possesses an advantage. The impact on the economy, already reeling under the Covid 19 crisis, would be devastating. Foreign capital will panic and the rupee will collapse in the currency markets. Even a brief encounter will take a couple of years to recover from. Pacifists contend that with nuclear capability, things could quite easily go out of hand. Moreover, India would have to stand on its own and despite the global China aversion, none would actually come to help. Japan and Israel may provide some technical support but that is as much as India may legitimately expect.

Both New Delhi and Beijing understand the implications of a conflict and would take every step possible to diffuse the current tensions. In the longer term, the border dispute will continue through bilateral discussions although any resolution seems highly unlikely considering the matter remains unresolved for 60 years. Perhaps, the economic card would need to be played despite the costs, as it brings another angle to the table. As Edmund Burke, the eminent Anglo-Irish statesman said, ‘the only thing necessary for the triumph of evil is for good men to do nothing’.