China spurs a hike in India's defence spending, and India's decoupling push gathers pace
Welcome to today's The India China Newsletter.
In today's issue, I'll be looking at:
- The rather long China shadow over India's Budget, presented in Parliament today
- How the China border crisis affected defence spending last year and will do so next year too
- The ambitious manufacturing push announced by the Indian government today, which is in part fuelled by China concerns too
- How China and India are reacting to the Myanmar coup developments
The Budget presented in Parliament today was the big story in India, and it shed some light on how defence spending last year was impacted by the China border crisis. India spent Rs 20,776 crore ($ 2.84 billion) last year on emergency unbudgeted defence expenses, which, Manu Pubby reports, was the result of a global hunt for equipment and stores to deal with the China border crisis in Ladakh last year. The armed forces had a surge in unbudgeted spends from missiles to winter clothing for troops in Ladakh. The bill, I suppose, should be marked to the PLA.
The overall defence budget this year was hiked by 7% excluding pensions, while the outlay for capital acquisition is up by a rather more significant 18%. Whether that hike meets the expectation of the armed forces remains to be seen. Snehesh Philip writes:
There is a greater expectation among the armed forces, which have been reeling under acute financial crunch, for increased allocation to meet their modernisation plans.
The armed forces are up against China, a country with the second-largest defence budget in the world. In 2020, China’s official defence budget stood at $179 billion, three times that of India’s.
In a reminder of the military challenge that's still on-going, while the focus has been on Ladakh and the western sector, this report in India Today shows the military threat is very much present on other fronts with China too, noting that "a comparison of satellite images from June 2020 and September 2020 clearly shows new roads constructed in the Chinese territory near Naku La" in the Sikkim sector.
Lt. Gen. DS Hooda (retd), former Northern Army Commander, has an excellent piece elaborating on a similar theme:
What does this mean for the coming summer months? It would be strategically prudent for the Indian Army to prepare for a contingency in which the PLA attempts to move into more disputed areas along the LAC, particularly in Arunachal Pradesh. To counter this, we must aggressively secure these areas now before the snows melt and the PLA movements become easier across the Himalayan watershed defining the LAC.
An argument is often made that the existing stalemate resulting from our firm stance is a victory for us because we are not acquiescing to Chinese demands. There is certainly some merit in this argument because a stalemate is generally considered a setback for the superior power. However, remaining entirely on the defensive could also mean that we have passed on the initiative to the Chinese and will continue to react to their actions. With talks not making any headway, the summer months could see military jockeying in the disputed areas. Strong and visible military preparation in these areas would serve as deterrence to any PLA action and strengthen our hand in future negotiations.
He also offers his take on what may have prompted China’s recent actions on the border:
The overall political intent of the Chinese leadership in precipitating the crisis along the border is still open to differing interpretations, but eight months into the standoff, there is greater clarity to their military aims. The PLA military strategy appears to be focused on two objectives — strengthening control over the disputed areas along the LAC and overcoming their war-fighting weaknesses in Tibet.
It is becoming increasingly evident that the primary element of the PLA’s military strategy is to change the nature of disputed areas to give permanence to their claims. In Ladakh, this is being attempted by physically occupying the disputed areas on the north bank of Pangong Tso or physically preventing the Indian patrols from going up to their claim lines at Depsang. Despite nine rounds of military-level talks, there has been no movement forward on disengagement from these two areas.
I reported this weekend for The Hindu on India's concerns on its overdependence on China for “critical imports” and the multi-pronged strategy that’s in place to deal with this, ranging from the Production Linked Incentive (PLI) scheme to boost domestic manufacturing, a global effort involving India’s foreign missions to find alternatives to China, and the use of free trade agreements (FTAs) with other trading partners.
Make no mistake, this is all very much at the starting point and there’s a long way to go — and many hurdles in the way that appear very difficult to surmount — and India remains extremely dependent on many critical Chinese imports, as the piece notes.
In today’s Budget, the government announced it would expand support to the PLI scheme to other sectors after what it believes to be a very promising response from foreign companies in the mobile phones industry:
As finance minister Nirmala Sitharaman presented the union budget on February 1, she announced that the government aims to spend ₹1.97 lakh crore on various PLI schemes over the next 5 years, starting from this fiscal. This will be an addition to the ₹40,951 crore announced for the PLI for electronic manufacturing schemes.
The production linked incentive scheme (PLI) for large-scale electronics manufacturing serves the purpose of providing incentives to producers. This will be a major step ahead in making India a hub for manufacturing and exports. Under the scheme, eligible players will receive incentives ranging from 4 per cent to 6 per cent of production value for five years, after they achieve their investment and production value target for each year.
The move is likely to attract global players in the manufacturing sector and make India globally competitive by attracting investment. The scheme also aims to encourage local companies to set up or expand existing manufacturing units in the country. The move is significant for the manufacturing sector in a time as it faces a crisis because of the ongoing coronavirus pandemic.
The scheme was also a part of the Economic Survey that was tabled in the Parliament on Friday. In the Survey, the government said that the scheme will make "Indian manufacturers globally competitive, attract investment in the areas of core competency and cutting-edge technology." The Survey added that the scheme will also establish backward linkages with the MSME sector in the country, which, in turn, "will lead to more inclusive growth and create huge employment opportunities".
In November 2020, the central government approved a ₹1.45 trillion the PLI scheme for ten sectors which included advance chemistry cell (ACC) battery used in consumer electronics, electric vehicles, renewable energy; electronic and technology products; automobiles and automobile components; pharmaceutical drugs; telecom and networking products; textile products; food products; solar PV modules; air conditioners, LEDs and speciality steel.
India reacted to the coup in Myanmar by expressing support to the democratic process:
We have noted the developments in Myanmar with deep concern. India has always been steadfast in its support to the process of democratic transition in Myanmar. We believe that the rule of law and the democratic process must be upheld. We are monitoring the situation closely.
China had a somewhat more guarded reaction:
“We have noticed what happened in Myanmar and we are learning more about the situation,” said Wang Wenbin, spokesman for the Chinese foreign ministry.
“China and Myanmar are friendly neighbours. We hope that all parties will properly handle their differences under the constitution and legal framework to maintain political and social stability,” Wang said.
The South China Morning Post reports on China’s dilemma here:
A Chinese military source told the South China Morning Post the coup put China in an awkward position because “what lies at the core is the conflict between the political coalition led by Aung San and the power force led by the Myanmese military, both of which have a cordial relationship with China‘’.
“Right now, China can only monitor the situation, but won’t do anything”, said the person who requested anonymity because he did not have permission to speak to media.
He said Chinese projects might be affected by the coup, but the disruption would not be to the extent of that caused by coronavirus. “Many projects have already been slowed or stalled amid the pandemic,” the military source said.
And finally…
In a reminder of the Indian pharmaceutical industry’s dependence on China, the Bangalore Mirror reports of a shortage in a chemotherapy drug which is concerning cancer patients, which the report blamed on the inability to procure the needed raw material from China. It attributed this to the recent tensions.
In a sad irony, it turns out cancer patients in China have also been affected by recent developments, as Sixth Tone reported in this very detailed and in-depth story I recommend reading in full, with the sky-high prices of drugs in China leading many to source them from India.
Thank you for reading.
with the sky-high prices of drugs in China leading many to source them from India.
---wow.....all thing aside. Supply-demand play one side