Separating economic and border issues

As we exit the lockdown and resume economic activity, we will have to observe certain protocols. Like social distancing. Or using hand sanitisers in office, public places, or even at home. These sanitisers are alcohol-based and usually come in dispenser pumps. The pump minimises human contact, unlike a tube or bottle. It is made of plastic, has 16 components, and costs less than Rs 20 if produced at scale. Here’s the rub: As reported by an online news outlet, we have not been able to find domestic manufacturers who can produce dispensers at a large scale, at this cost. We are facing a health crisis, and urgently need large quantities of dispenser pumps. There’s no alternative but to import from China.Take pharmaceuticals. We are the world’s leaders in bulk drug formulations, used by leading medicine makers of the world. But these formulations need crucial active pharmaceutical ingredients (APIs) as inputs. Without APIs, our pharma industry, both domestic and export, will be crippled. And 65 per cent of APIs are imported from China, worth $3.5 billion (i.e. about Rs 25,000 crore). When imports were halted in April and May due to the lockdown and stoppage of the sea and air cargo, there was near panic in the Indian pharma industry. This could threaten even our internal supply situation for medicines. And there is no realistic option of switching to any other supplier, at this cost or scale. Unless we risk rising medical costs.Read More

The Fallout of US Tariffs

However, if the current trend of protectionism in the US extends to other goods such as pharmaceuticals, or to services such as software, the US faces the prospect of losing this support base. Further, if the US were to lose the support from the south, the India-US relationship will again be seen largely from the prism of the Pakistan factor and the economic partnership will have to take a backseat.

The India—US defence partnership will also be weakened if trade barriers hinder the relationship between the two countries. Purchasing defence equipment is a strategic decision, not a transactional one for India. The risk of being overly dependent on foreign powers can be mitigated if we procure military equipment from countries with which we have extensive economic ties. However, if general trade between the US and India suffers due to increasing tariffs, defense procurement from the US would no longer serve a strategic purpose and India will lose the strategic leverage that comes from being able to favour a country that can give us something more than just military equipment.

Finally, tariffs will also affect business and investment decisions. Given the particular state of global finance, with increasing inflation in the US (partially caused by increased import costs) and higher interest rates as a result, the flow of portfolio and direct investment from the US to India will reduce. With India’s banking sector facing a severe crunch due to the high amount of non-performing assets, the need for private sources of funding for Indian companies will be acute. Simultaneously, China is continuously looking for opportunities to invest abroad, as witnessed by its aggressive buying of assets in other countries. The void that will be left by the US will be readily filled by China, and that is an outcome that neither the US nor India will be too keen to witness.

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