The Political Fix: Post Covid, will India push back against China – or does it need Beijing’s cash?

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The Political Fix: Post Covid, will India push back against China – or does it need Beijing’s cash?

The Big Story: Bhai bhai

What happens when the state and its people are not on the same page?

The Indian state and the Indian people are alike in their attitudes towards Pakistan. Islamabad is viewed with deep scepticism by many Indians, an attitude that is cynically encouraged by the government, which has sought to isolate Pakistan globally.

Similarly, the positive light in which many Indians view US president Donald Trump appears to correspond with the government’s efforts to court Washington, even if that warm attitude is not always reciprocated.

This correlation appears to break down when it comes to China.

More than 60% of Indians believe that a growing Chinese economy is a bad development for their country, and that Beijing has a negative influence on economic conditions in India. Calls to boycott Chinese goods and strident criticism of Beijing for supporting Pakistan are commonplace on Indian WhatsApp groups.

Yet in 2018-’19, China was India’s second-biggest trade partner, and was its biggest trading partner for half a decade before that. China has been the fastest-growing source of Foreign Direct Investment for the last five years.

recent Brookings paper by Ananth Krishnan concludes that the total current and planned investment of Chinese companies into India is three times the official figure, at $26 billion. That figure too is a likely underestimation because of Chinese money routed through other countries.

The global spread of the novel Coronavirus (26,496 cases in India as of Sunday, with 824 deaths) and its devastating impact, on lives and livelihoods, has made this gap even starker.

A limited online survey by the Takshashila Institution found that two-thirds of respondents believe China is to blame for Covid-19 turning into a global pandemic. Phrases like “Wuhan Virus” and “Chinese Virus” can be found not just from angry partisans online, but also in the press and in articles from think tanks.

Unlike Trump, who has sought to pin blame for the coronavirus crisis directly on China for its opaque handling of the virus particularly in the opening months, Indian authorities have taken a much more pragmatic tone.

In March, China’s ambassador to India tweeted that Indian Foreign Minister S Jaishankar “agreed not to label the virus” and stigmatise China, though India’s official channels remained silent on the matter.

India has also largely stayed away from Trump’s attempts to target the World Health Organisation, which the US president claims is completely under Beijing’s influence. New Delhi has indicated support for the WHO, without putting out a statement on Trump’s decision to withdraw funding to the organisation.

There are obvious reasons for India to play it safe, relative to other countries that seem to be taking the opportunity to target China.

The two countries share a disputed border, with Beijing having won a war against India in 1962 and continuing to hold the economic and military upper hand. Maybe more importantly, much of the key equipment India may need if the Covid-19 crisis explodes in the country – testing kits, personal protective equipment, ventilators, masks – may have to come from China.

But that doesn’t mean New Delhi has not taken decisions in its own self-interest.

Early in February, India banned the arrival of foreigners who had been to China after January 15 and Indian airlines canceled flights from that country, despite protests from the Chinese government. Union Road and Highways Minister Nitin Gadkari has called on Indian companies to take advantage of the “great hatred” against China right now.

Perhaps the most significant step was taken mid-way through April, when India tightened norms for Foreign Domestic Investment from any country with which it shares a land border to curb “opportunistic takeovers or acquisitions” of Indian companies.

The new rules require companies from neighbouring countries to get clearance from the Indian government before they invest in Indian firms.

The decision was aimed squarely at Chinese companies, which were seen to invest opportunistically in European firms after the 2008 financial crisis. It came as a response to news that the People’s Bank of China, the country’s Central Bank, raising its stake in Indian bank HDFC from 0.8% to 1.01%. Naturally, Beijing protested, saying the restrictions went against World Trade Organisation principles of non-discrimination.

Watching how this plays out should offer a clear indication of whether the aftermath of Covid-19 actually ends up hurting Chinese influence, as many have predicted it might.

Within the Indian government itself there were debates about putting obstacles in the way of foreign investment at a time when India desperately needs the capital. The new rules provoked disquiet among the companies that have or hoped to get Chinese funding.

Some analysts have argued that India should just take Chinese money, because it strengthens New Delhi’s position. One ideologue from the ruling Bharatiya Janata Party acknowledged that India made the decision on limiting investment after an appeal from the Congress’ Rahul Gandhi and expressed the hope that a bipartisan position against China could open up new avenues for geopolitical thinking.

Now Reuters reports that India will “fast-track” some investments from China, just a few weeks after putting in place obstacles to slow them down, presumably to ensure that the rule-change does not get in the way of projects that were already planned.

This ambiguity lies at the heart of the Indo-Chinese relationship. Nationalists and China sceptics are hoping that the Covid-19 crisis will prove to be a reckoning for Beijing, making the world reassess its relationship with China.

But India, where prospects for the economy look dire, can hardly afford to say no to Chinese capital. How will the government address a potentially growing divergence between anti-Chinese sentiment and the need to work with Beijing if it is willing to invest?

Paralysis and stupor

Speaking of the Indian economy’s future, read this paragraph from V Anantha Nageswaran, a member of the Prime Minister’s Economic Advisory Council:

“At the time of writing this (7:32 PM, Singapore time on 24th April 2020), the Government of India had not announced any economic package beyond the frugal first package targeted at the poor, low-income and vulnerable segments of the population. That was in March. In these frenzied times that feels like aeon ago. Quite what has caused the Indian government’s seemingly permanent state of paralysis and stupor can only be a subject of speculation.”

It is true. Not only has there been little sign of another financial package from the government, there is no suggestion that the Centre will offer a national economic strategy in the face of a massive disruption.”

I wrote this week that maybe this is because the government’s economic team is simply overwhelmed, based on the rather obvious sign that it was unable to design a coherent strategy before the Covid-19 crisis.

Ideally, if the government uses this moment to paper over its previous economic mismanagement, it should also take advantage of the situation and ask for help from a wider set of economic thinkers.

Meanwhile, some young Indian Revenue Service officers got into trouble for offering ideas without the government asking for them.

Centre vs Centre

One of our focuses over the past few months has been how the Covid-19 crisis has put a strain on India’s state capacityas well as federalism. Two weeks ago we also told you how India would have a tough time navigating its way out of a lockdown.

All of this has come together in this excellent report from the Indian Express’ Deeptiman Tiwary, which documents how the Centre botched up reopening guidelines, leaving states and citizens confused.

“Given how the virus was aggressively contained, and to restore livelihoods, [Kerala] provided many relaxations, including operation of dine-in restaurants and barber shops, opening of book shops and local workshops, movement of public in buses within a city, etc. Within two days, on April 19, MHA shot off a letter to Kerala saying these were a dilution of guidelines issued by it and the state was not allowed to do so under the Disaster Management Act.

Yet, on April 21, the Centre issued orders to open shops for educational books – an activity it had prohibited Kerala from undertaking – and electric fans. Here, too, the ambiguity meant that fans were still not selling on the ground since there are no exclusive fan shops. They are largely sold through electrical equipment shops which sell multiple items.

On the same day, in a separate letter to all states, it warned them not to dilute its guidelines. It did this even as the government of Uttar Pradesh continued to pull out hundreds of students belonging to its state from Kota in Rajasthan in buses.”

Go read the whole piece.

Ambani + Zuckerberg = ?

Your non-Covid-19 news of the week comes from the “data is the new oil” camp. Facebook bought a 9.9% stake in Reliance Jio Infocomm Limited. It then thanked Reliance for agreeing to the partnership – that’s right, thanked Reliance for accepting US$ 5.7 billion or Rs 43,574 crore – which should tell you a little bit about what’s going on here.

My initial take on the deal is here.

There were good breakdowns on this from MedianamaThe KenThe Morning Contextand Stratechery.

TL;DR, can JioMart and WhatsApp turn the two companies into an Amazon/Alibaba style retail behemoth?

Flotsam and Jetsam

The fact that pieces need to be written revealing Amit Shah’s relevance during the Covid-19 crisis says everything. The Centre has repeatedly called out West Bengal’s handling of the lockdown. It is taking a much nicer tone with Uttar Pradesh. There has also been a reshuffle of top-level bureaucrats.

The Reserve Bank of India’s attempt to get money to Non-Banking Financial Companies didn’t work. Mutual Fund house Franklin Templeton wound up six schemes, sparking panic among retail investors. The Bharatiya Janata Party is using TV anchor Arnab Goswami to destabilise Maharashtra, even as it plays a brinksmanship game with Chief Minister Uddhav Thackeray.

Recommendation Corner

Shruti Rajagopalan is a Senior Research Fellow at the Mercatus Center at George Mason University. She wrote, with Alexander Tabarrok, a series of policy recommendations for the Covid-19 crisis.

Here are her recommendations:


Have recommendations for an article, book, podcast or academic paper that deals with Indian politics or policy? Send them to rohan@scroll.in.

Previous recommendations from the Political Fix are collected here.


Ground Report

One of the paradigms with which to look at India’s Coronavirus crisis is to think of the country as something like the European Union, a collection of nations, with different Covid-19 trajectories in each.

Arunabh Saikia and Nithya Subramanian look at the very different paths charted by some of India’s states.

“Consider Madhya Pradesh and Tamil Nadu, two states with almost the same number of people. While the two states are neck and neck as far as the absolute numbers of cases go, their testing rates are widely divergent. Till April 22, Madhya Pradesh had tested around 350 samples per million people, while the corresponding number for Tamil Nadu was more than double at above 700. One obvious outcome of that is that the positivity rate – the number of samples tested per positive case – in Madhya Pradesh is twice that of Tamil Nadu.

The two states differ on another key yardstick: the mortality rate. Madhya Pradesh’s mortality rate is more than 5%, which is among the highest in the country. Tamil Nadu, on the other hand, has a mortality rate of just over 1%.”

Read all of our coronavirus coverage here.

And if you need a break from all the hard news, there’s Art of Solitude, our series on the creativity that is helping people tide over these times.

Linking Out

People broadly support the lockdown, but nearly everyone has seen a significant income drop. That is the result of a survey by the National Council of Applied Economic Research’s Sonalde Desai and Santanu Pramanik in the Delhi metropolitan area.

The government’s lockdown exemptions for agricultural mandis have meant little on ground. “It is clear that the government had made no advance preparations to ensure that the supply chains, especially of essential food items, continued to function,” says a study by Vikas Rawal and Ankur Verma of the Society for Social and Economic Research.

India doesn’t just have high unemployment but also a big drop in labour-force participation. Listen to Centre for Policy Research’s Yamini Aiyar speak to Mahesh Vyas of the Centre for Monitoring Indian Economy.

The Covid crisis and low oil prices will massively affect Indians in the Arabian Gulf. Issac John of the Observer Research Foundation breaks down the impacts the current moment will have on the millions of Indians living across the Arabian Sea.

“Minimise democracy, maximise interfaith distance and maintain aloofness from the poor. Will that be the shape of life after lockdown?” asks Suhas Palshikar in the Indian Express.

Livestock contributes 30% to India’s agricultural GDP. Yet policy intervention has focused on crops. Sayantan Bera in Mint takes a look at how India’s cattle and poultry farmers have been affected.

As the BJP fought to bring down the Congress in Madhya Pradesh, Covid-19 was spreading. Sidharth Yadav in the Hindu tells the tale of politics in the middle of a pandemic, which astoundingly has not hurt the BJP much, despite the state’s worrisome numbers.

Almost as worrying as the Franklin Templeton mess is the complete silence from government. Shankar Aiyyar in the New Indian Express says “fear has no bottom and is known to go viral,” especially when there is no reassurance from authorities.

Can’t Make This Up

This is not fake news. A NITI Aayog study, tweeted out by the Press Information Bureau, claims that there will be no new Covid-19 cases in India after May 16. Seriously.