The Narendra Modi government’s knee jerk decision to curtail ties with China overnight could cost India heavily.
Besides banning a host of Chinese apps, the Indian government has reportedly advised all states to avoid signing any agreements with companies from the East Asian nation. Following the instructions, the Western state of Maharashtra has put on hold three deals worth over Rs 5,000 crore that were signed with Chinese companies at a recently-held investor meet.
Similarly, the future of the semi-high speed rail corridor, Delhi-Meerut Regional Rapid Transit System, is in limbo because China’s Shanghai Tunnel Engineering Co had emerged as the lowest bidder for an underground stretch of the project.
“Cancelling tenders that have already been awarded to Chinese investors might prove to be a difficult task,” said Kazim Rizvi, founding director of policy think tank The Dialogue. “Projects that are funded by international organisations such as the World Bank or have been processed through multilateral procurement guidelines explicitly disallow any discrimination between the countries.”
Besides stalling plans for existing projects, such moves could hamper India’s reputation in the international market, Rizvi added.
China and Indian infra
Between 2014 and 2018, India ranked 31st in the list of countries where China invested. Infrastructure has been a sweet spot for China in India, as per policy think tank Brookings India.
Chinese investments also play a vital role in industries allied with infrastructure, including construction equipment and steel plants. For example, nearly half of the Tunnel Boring Machines that are to be used in building an underground Metro line in India’s financial hub Mumbai are owned by Chinese companies, while the remaining are owned by western countries but made in China.
“It is not possible to replace the sources of these types of equipment overnight,” a former senior official from the Mumbai Metropolitan Region Development Authority told the Indian Express newspaper. “We will have to depend on Chinese equipment till Indian firms like BHEL [Bharat Heavy Electricals] or BEML start manufacturing these large pieces of machinery.”
The only way infrastructure projects in India can reduce dependence on China is if the Modi government takes some bold steps, including opening routes for trades with other nations, experts said.
Walk the walk
As per Rizvi of The Dialogue, if the Indian government wants the infrastructure sector to reduce dependence on China, it must do the following:
- Plan: Devise a blueprint of import substitution that offsets the need and reliance on Chinese products by encouraging research and development, and innovation.
- Build: Help increase the manufacturing capabilities of small scale industries by providing financial packages and cheaper loans.
- Move: Help startups in getting investments from other countries by easing FDI routes while placing stricter restrictions on Chinese investments.
“Over the last few decades, Indian contractors have built capabilities to execute complex and challenging construction contracts. The majority of the civil works can be taken up by the Indian entities,” said Rajeshwar Burla, vice-president of corporate ratings at credit agency ICRA.
The only dependence on Chinese players would be to the extent of construction equipment supply or the rolling stock for which there are other alternatives available across the globe, though, at a higher cost, Burla said. ”India awarded some rolling stock supply contracts to Beijing-based China Railway Rolling Stock Corporation. It should explore options from South Korea and Europe,” he added.
This article first appeared on Quartz.