Financial War ? By: Agnit

In the first three years of the Modi regime, Chinese Investment in India has risen to $8 billion from $1.6 billion in 2014. Alibaba has invested heavily in Paytm, Snapdeal, and Zomato. Among India's top 30 unicorns, 18 of them are Chinese-sponsored and technically driven.

The recent decision by Chinese conglomerate Alibaba to set up investment plans in India could be a major problem for the Indian start-ups. Alibaba is one of many Chinese investors who have pulled the brakes on new Indian start-up investments after changes in Foreign Direct Investment (FDI) laws that state that an entity of a country, which shares a land border with India or where the beneficial owner of investment into India is situated in or is a citizen of any such country, can invest only under the govt route. Before this, FDI policy was limited to allowing Bangladesh and Pakistan only on the govt route in all sectors. The revised law has now brought companies from China under the govt route filter. Amidst the pandemic and growing tensions between India and China, Indians are more likely to align with the idea of ​​boycotting Chinese products in the domestic market. This decision will no doubt create great opportunities for our country and create jobs, however, the question is ‘Is this the right time?’. It is a call that needs to be taken by weighing the pros and cons. So, this raises the question, are we in a better position to fund our economy without Chinese funding or whether we are making this decision based on emotion rather than rational thinking?

India only accounts for 2.1% of China’s trade which places India at the 12th position of China’s total trade ranking, whereas China is India 2nd largest trade partner who accounted for around 10.6% of Indian trade for the FY 2019-20. This is only one aspect of India’s economic dependency on China. Another major area is funding which the Indian start-ups receive from Chinese investors.

The list below shows the different companies who have received funding’s from Chinese Investors –

So, this brings us to the questions – ‘Is India in a position to go in financial war with China?’

Indian markets are overflowing with Chinese products. The reason? The Indian market is a price-sensitive market and the Chinese can get a lion’s share due to their cheap products giving them price advantage as compared to the products made by Indians. The major imports and exports between India and China are –

Acuite Ratings & Research estimates have researched how we can reduce our trade deficit with China and according to them is likely to be reduced by USD 8.4 Billion by FY 2022. According to them, Indian could substitute imports from China of chemicals, car parts, bicycle parts, agricultural products, handicrafts, drug formulations, cosmetics, consumer goods and leather goods and thus provide an opportunity for Indian MSME’s to grow.

Trade deficits in India and China have increased since FY - 2005-2006. Trade deficits in India and China were at the highest level of FY - 2017-18 was USD 63 Billion and since then we have seen a fall in FY - 2018-19 to USD 53.56 while in FY - 2019-20 was down at USD 48.66. The "Make in India" campaign launched by Prime Minister Narendra Modi on 15 September 2014, to reduce our exports and thus helping our economic independence is yet to make a significant impact on our economy. Our start-ups are still heavily dependent on funding from external sources and China is a source of funding at this time of ailing economy that India cannot afford to lose.

The Indian diplomatic relations will even help to suppress our feelings for the sake of our economy until the situation stabilizes. Therefore, based on all the facts and figures it is safe to conclude that in this war between "Make in India" & "Made in China" the latter is stronger than the other. But with the right decisions taken, we can change the table.

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