India set to erect a Great Wall against Chinese companies

NEW DELHI: India is considering multiple, comprehensive measures to curtail the country’s economic reliance on China, targeting trade, investment and project services in the wake of border hostilities. These are likely to include restrictions on participation by Chinese companies in government contracts and infrastructure projects, higher tariffs on imported Chinese finished goods as also a closer review of free trade agreements that are being used by the country to export goods indirectly into India.
A high-level meeting, likely to be attended by key stakeholder ministers and top officials from the Prime Minister's Office (PMO), is expected soon to discuss the details and the extent of measures, government officials told ET.



“Measures are being examined... All pros and cons of how and when as also their repercussions on Indian businesses will be looked into,” said a government official.

Steps to Curb Imports from China
On the trade side, there could be tariff as well as non-tariff measures to discourage imports from China that added up to $70 billion in FY19, more than from any other country. India had a $53 billion trade deficit with China in FY19 and attempts to address it have not made much progress. Chinese companies have a big share of India’s mobile phone and electronics markets.

The government will consider measures to curb Chinese imports while simultaneously providing an environment for the domestic production of such goods.

India will also review its free trade agreements with other countries to see if they are being used by China to access the local market. India has already walked out of the negotiations on the Regional Comprehensive Economic Partnership (RCEP), which includes China among others, reasoning that there is no safeguard against a further rise in exports from that country to India. Stringent quality standards and checks could also be introduced to contain the inflow of goods from the country.

Infra Contracts
One set of likely measures is aimed at preventing Chinese companies from participating in contracts for infrastructure projects, government officials said. This includes the introduction of a clause based on the principle of reciprocity that would seek to restrict participation of companies from countries where Indian companies face curbs in applying for contracts.

Various options are being examined by the law ministry on the exact contours of the clause to ensure it cannot be challenged and meets international norms. The omnibus clause could cover all countries, the official said, though it is primarily aimed at Chinese companies.

One of the first sectors to introduce the clause could be roads and highways before it is expanded to others and eventually includes public sector units, said the officials. The ministries of road transport and highways and law are already in discussions to finalise the wording of the new clause, one official said.

The government has moved to scrap and rework contracts floated by state-owned telecom companies BSNL and MTNL to keep out Chinese equipment suppliers over security concerns.

Additional criteria could be introduced to ensure that contracts awarded by the government as also public sector entities are secured by Indian suppliers of goods and services.

The law ministry is examining the feasibility of introducing such a clause in contracts in line with restrictions or stringent conditions imposed by some other countries on Indian companies from participating in contracts. “These stiff criteria essentially are barriers to ensure that only local companies can participate,” the official said, adding that such restrictions imposed by other countries are also being examined in detail.

Atmanirbhar Mission
The exercise had already been underway as part of the government's Atmanirbhar, or self-reliance, mission and has gained in importance in the wake of changed circumstances at the border, he said.

The cabinet secretary, who also chairs a committee on boosting local manufacturing, has held discussions with various ministries that deal with infrastructure projects on how to increase local sourcing of both goods and services.

The lowest bidder is generally accorded prior security clearance but there’s a growing view that a more stringent framework is needed, said the official cited above.

Some bids in which Chinese companies were roped in as partners by an Indian company in the roads sector have been cancelled recently, including one in Nagpur.

The government has already reserved supply contracts of up to ₹200 crore for local producers.

The government is likely to revisit these criteria to ensure wider participation by domestic companies, another official said.

“There is a growing concern in the government about overdependence on external supply chains concentrated in a single country especially in crucial segments such as pharmaceuticals or supply of large equipment and machinery in many crucial sectors, which needs to be cut down,” the official said.