The instinctive decision of the Narendra Modi government to cut ties with China overnight could cost India a great deal.
In addition to banning a large number of Chinese applications, the Indian government has advised all states to avoid signing agreements with companies from the East Asian nation. Following instructions, the western state of Maharashtra has postponed three deals worth more than Rs 5 billion ($ 67 million) that were signed with Chinese companies at a recently held investor meeting.
Similarly, the future of the semi-high-speed rail corridor, the Delhi-Meerut Regional Rapid Transit System (RRTS), is in limbo because China’s Shanghai Tunnel Engineering Co (STEC) has become the highest bidder for a underground section of the project.
“Canceling the offers that have already been awarded to Chinese investors could prove to be a difficult task,” said Kazim Rizvi, founding director of the policy experts group The Dialogue. “Projects that are funded by international organizations like the World Bank or that have been processed through multilateral procurement guidelines expressly reject any discrimination between countries.”
In addition to delaying plans for existing projects, such moves could hamper India’s reputation in the international market, Rizvi added.
Infrastructure of China and India
Between 2014 and 2018, India ranked 31st on the list of countries where China invested. Infrastructure has been a sweet spot for China in India, according to the Brookings India Policy Expert Group (pdf).
Chinese investments also play a vital role in industries associated with infrastructure, including construction equipment and steel plants. For example, almost half of the tunnel boring machines (TBM) that will be used to build an underground subway line in the financial center of India, Mumbai, are owned by Chinese companies, while the rest are owned by Western countries. but made in China.
“It is not possible to replace the sources of this type of equipment overnight,” a former senior official with the Mumbai Metropolitan Region Development Authority told the Indian Express newspaper. “We will have to rely on Chinese equipment until Indian companies 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 trade with other nations, experts said.
Walking the way
According to Rizvi of The Dialogue, if the Indian government wants the infrastructure sector to reduce dependency on China, it should do the following:
- Plan: Design an import substitution plan that compensates for the need and dependency on Chinese products by encouraging research, development and innovation.
- Build: Help increase the manufacturing capabilities of small-scale industries by providing cheaper financial packages and loans.
- Move: Help start-ups obtain investments from other countries by facilitating FDI routes while imposing stricter restrictions on Chinese investments.
“In the past few decades, Indian contractors have developed capabilities to execute complex and challenging construction contracts. Most civil works can be carried out by Indian entities, ”said Rajeshwar Burla, vice president of corporate ratings for the ICRA credit agency.
However, the only dependence on Chinese players would be to the extent of supplying construction equipment or rolling stock for which other alternatives are available worldwide, at a higher cost, Burla said. ”India awarded some rolling stock supply contracts to the Beijing-based China Rolled Railways Corporation. It should explore options in South Korea and Europe, “she added.
