Imports from China has led to curbed capacity creation and utilisation, India needs to address this malaise for economic revival. Comment.

Published: December 12, 2019

China has seen an extraordinary success story of industrialisation and is the biggest beneficiary of globalisation. India and China had the same per capita income In 1991 — the year of Indian economic reform. There technological capacities were also at similar levels but today China is the factory of the world and its per capita income is five times that of India. 

China chose to make its own path to success with the Western economies tending to be critical of China for not acting according to the prevailing economic paradigm. It was in 2000 when China became a member of the WTO and that too with difficulty. 

Having conquered the global markets, China now has become a proponent of free trade and globalisation at the World Economic Forum. China is promoting OBOR and the RCEP, on its way to becoming a superpower.

While China marches forward, India confronts a critical juncture. In its RCEP negotiations, producer groups saw only the adverse consequences of joining the RCEP and asked for protection. India’s experience with FTA’s with Asian countries shows that the Indian industry has not benefited. Though there may be a feeling of loss, the real roll has been through growing trade with China. 

India’s imports constitute items related to thermal power plants, consumer goods and now solar panels and while it exports products like iron ore and cotton. All what is being imported can be made in India. While globally there is a stagnant demand in the West there is excess, competitive manufacturing capacity in China and huge demand in India. 

The free trade logic is to meet India’s growing demand with China’s manufacturing capacity, resulting in India’s shutdown of its existing capacities without creation of new ones. While this has been happening, joining the RCEP would tend to accelerate the process. This can be a major factor in the nature of the present serve economic slowdown. 

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