If India does not discard protectionist policy, China will retaliate

If India does not discard protectionist policy, China will retaliate

SAM Report,

Beijing has called upon India to renounce protectionist measures against Chinese smartphones, asserting that China will be forced to take counter measures if New Delhi continues their inequitable policy in the name of protectionism against international competition.

China’s influential newspaper Global Times in a report Tuesday, which dealt on India’s stance on Chinese products stated that the Indian government should resist the temptation of resorting to protectionism and maintained that Indian firms protesting against Chinese products are seeking government action to ease the pain of being unable to compete with China especially in the IT market.

India is seen as becoming apprehensive of smart phones produced by China which is selling at competitive rates in India.

“The government should be more supportive of its people,” Narendra Bansal, founder of Indian smartphone brand Intex Technologies, was quoted as saying in the Financial Times, adding that the Indian government should raise supplementary levies against handsets from Chinese companies.

Pointing towards Narendra Modi’s “Make in India” campaign, Global Times questioned the effectiveness of such policy. With this initiation by the Modi administration, India is in a period of rapidly developing industrialization, and the question of how to effectively protect nascent homegrown industries is a tough task faced by local governments. Although protecting local brands from the intense international competition can buy some time for the expansion of homegrown industries, such moves will reduce local companies’ competitiveness in the long run and build an inefficient industrial system.

The Report predicted that more protectionist measures taken by the Indian government will result in backward production capacity of Indian homegrown industries. Historically speaking, almost no country in the world has relied on a policy of protection to transform itself into a manufacturing powerhouse. If India wants to replicate China’s success as a world factory, the most valuable experience that China has gained in the last 40 years is its opening-up policy, which opened the domestic market to foreign investors.

The report mentioned how the Modi administration has ramped up efforts in recent years to make India a more attractive investment destination. A prime example of this is reforming its tax structure. However, potential protectionist measures could overshadow the effects of the government’s plan to improve the investment climate. China is currently a major source of investment in India, and the country may not be able to complete its industrialization and modernization without help from foreign investors. Chinese telecom equipment maker Huawei Technologies Co and some other Chinese smartphone vendors have announced that they will establish production facilities in India to increase their local assembly of handsets in the country.

According to Global Times, Indian entrepreneurs like Narendra Bansal, rather than average Indian laborers, will perhaps be the biggest beneficiaries of any protectionist measures against Chinese smartphone products.

“As for China, the Chinese government is unlikely to sit idly by while India harms the interests of Chinese companies. We cannot rule out the possibility that China will take countermeasures if India takes unfair measures to protect its homegrown companies from international competition. Beijing and New Delhi should avoid a potential trade war and enhance economic cooperation in order to strengthen bilateral ties between the two countries,” the Global Times said.