Growing Chinese Imports Fuel Indian Paranoia
The nation’s capital account continued to be negative for the second quarter in a row. The gauge of investment flows into and out of the country showed a shortfall of $4.44 billion in the three months to 31 March, compared with a net inflow of $26.5 billion a year earlier, RBI said.
India's government has sent letters to the country's telecom companies ordering them not to buy equipment from Huawei, ZTE, and several other Chinese companies due to security risks, according to a report in Businessweek. A few weeks ago, the Wall Street Journal reported that there was a similar move by Delhi to limit China's growing role in building India's power sector.
Growing Chinese Imports:
India's imports from China expanded 19 per cent and stood at US$ 32.49 billion in 2008-09, while exports were at US$ 9.35 billion. India's trade deficit with China is expected to grow larger this year, a trend India considers alarming given the nature of imports that go into India's essential infrastructure of power generation and telecommunications networks.
Chinese are now supplying equipment for about 25% of the new generating capacity India is adding to its national grid, up from almost nothing a few years ago. There are thousands of skilled Chinese expatriates at Indian plant sites, along with Chinese chefs, Chinese television and ping pong.
India is already the biggest export market for China's two leading telecom equipment manufacturers, Huawei Technologies and ZTE, as both companies have focused on India in recent years. As India has grown to the world's No. 2 mobile phone market in recent years, its imports of Chinese handsets have soared.
Unlike China, India lacks the necessary industrial and manufacturing base for greater self reliance in infrastructure equipment and defense armaments. India also runs large current account deficits while China is enjoying large surpluses strengthening its economic position in the world.
India is overwhelmingly dependent on foreign imports, mainly Russian and Israeli, for about 70 per cent of its defense requirement, especially for critical military products and high-end defense technology, according to an Indian defense analyst Dinesh Kumar. Kumar adds that "India’s defense ministry officially admits to attaining only 30 to 35 per cent self-reliance capability for its defense requirement. But even this figure is suspect given that India’s self-reliance mostly accrues from transfer of technology, license production and foreign consultancy despite considerable investment in time and money".
On the same theme, Russian newspaper Kommersant reported that "India has had little success with military equipment production, and has had problems producing Russian Su-30MKI fighter jets and T-90S tanks, English Hawk training jets and French Scorpene submarines."
On India's perennial dependence on imports, here's how blogger Vijainder Thakur sees India's loose meaning of "indigenous" Smerch and other imports:
"The Russians will come here set up the plant for us and supply the critical manufacturing machinery. Indian labor and technical management will run the plant which will simply assemble the system. Critical components and the solid propellant rocket motor fuel will still come from Perm Powder Mill. However, bureaucrats in New Delhi and the nation as a whole will be happy. The Smerch system will be proudly paraded on Rajpath every republic day as an indigenous weapon system.
A decade or so down the line, Smerch will get outdated and India will negotiate a new deal with Russia for the license production of a new multiple rocket system for the Indian Army.
China will by then have developed its own follow up system besides having used the solid propellant motors to develop other weapon systems and assist its space research program."
India does export some armaments but its modest record of producing and exporting weapon systems is evident from the fact that India’s defense annual exports averaged only US$ 88 million between 2006-07 and 2008-09. By contrast, Pakistan exported $300 million worth of military hardware and munitions last year.
India is looking for alternative sources for critical imports to reduce its dependence on the Chinese and Russians. But it faces an uphill task with Chinese imports in particular. China has become the biggest and the most efficient factory for the world's largest American, European and Japanese companies. Even if it does manage to find non-Chinese sources, India will have to pay much higher prices for such imports. And these imports may still contain crucial Chinese components which dominate the international supply chain for most non-Chinese companies, continuing its dependence on the Chinese.
On the defense side, India has begun to diversify away from Russia. Israelis have become major suppliers to India, and the US and Europeans are now bidding to sell military hardware to India. Both Israeli and Western equipment carries significantly higher price tags than imports from Russia.
In spite of Gandhi's Swadeshi movement and Indian policy of developing self-reliance, the nation remains heavily dependent on imports from China for its critical infrastructure, and its growing appetite for weapons systems on Russia and Israel. These growing imports are fueling India's current account deficits, and adding to its paranoia with regard to the rise of China. In response, Indian government is acting to reduce dependence on Chinese imports, a move that will likely to add further to its trade imbalance because of the higher costs of imports from non-Chinese and non-Russian sources.
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