In an interesting development, the government has begun clearing foreign direct investment (FDI) proposals from China on a case-by-case basis, ending a freeze that had lasted for around nine months. This comes on the heels of Indian and Chinese troops completing their disengagement at Pangong Tso near the Line of Actual Control (LAC). While resolution of other faceoff points remains – Depsang Plains, Gogra, Hot Springs and Demchok – there is no denying that the tense military situation along the LAC has somewhat eased compared to a few months ago. And although India had stopped inbound investments through the automatic route from all its land neighbours after the onset of the Covid pandemic last year, the move was widely seen as targeting Chinese investments – that perception was strengthened further after the LAC standoff intensified in June.
In fact, no consent was given for Chinese investments over the last nine months as Indian and Chinese soldiers faced off at the LAC. This resulted in a pile up of investments totalling over Rs 12,000 crore. That government has now begun giving consent for Chinese investments – albeit limited to smaller cases at the moment – clearly shows that economic ties between India and China act as an emergency brake for rising political-security tensions.
Actually, one shouldn’t be surprised if larger Chinese investment proposals are cleared in subsequent months in lockstep with resolution of the remaining LAC friction points. True, all of this will be carefully scrutinised as government has set up a coordination committee comprising officers from the ministries of home, external affairs, commerce & industry, and NITI Aayog to vet the investment proposals. But India cannot ignore the reality of China being the second-largest economy in the world today. And when that country is your land neighbour and willing to invest in your economy, those are powerful push factors for funds to flow in.
After the Galwan Valley clashes last year, India no doubt has to be careful about Chinese investments. Strategic sectors such as telecom and IT should definitely be protected. But investments in other sectors will have to resume, especially if the government here wants a strong post-Covid economic recovery and to create jobs. In essence, India is stuck in a grey-zone strategic tussle with China. This means both sides will continue to find themselves at odds from time to time, especially since the LAC won’t be demarcated and resolved any time soon as neither side is willing to make meaningful compromises on this issue. And because of this, Chinese incursions could again take place at various points along the border. But all-out open conflict is unlikely as such an outcome will be devastating for both sides. In fact, Beijing’s recent decision to reveal the details of its four soldiers who had been killed during the Galwan Valley clashes – India back then had promptly provided information about the 20 soldiers martyred on its side – after nine months shows the sensitivities associated with soldiers dying in China.
But short of piling up body bags, China is willing to push India from time to time to achieve small strategic objectives. These could be related to internal Chinese elite politics, or aimed at keeping India on its toes should it drift too much towards the US, or make incremental territorial gains along the border, or – as I suspect – all of these. And China being the bigger economy certainly has the advantage in playing these grey-zone games. But to keep things in the grey zone, China is unlikely to allow matters to escalate to breaking point. Which is why we now see Beijing making overtures and supporting India’s hosting of the Brics summit this year, while even floating the possibility of a visit to India by Chinese President Xi Jinping. Hence, we can expect this push and pull strategy on the part of Beijing to continue. But the problem is this is a risky game with considerable possibility of miscalculation. In fact, next time there could be a bigger blow up than Galwan with ground engagement taking a life of its own. Thus, from a long-term perspective, India has to narrow its overall power gap with China and continue partnering with like-minded countries through formats such as the Quad and Quad-plus to cultivate strategic depth against China’s aggressive tactics. In essence, reduce the scope of China playing grey-zone games by evening out the power equation, and raise the costs for Beijing’s military adventurism. Actually, India must be supported more by other Quad members in this regard as it is China’s land neighbour and most susceptible to Beijing’s grey-zone tactics. To effect change in China’s behaviour, we must all play the long game and make the red lines clear to Beijing.
Views expressed above are the author’s own.
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