Former bureaucrats who have dealt with China as government servants have called for oversight and restrictions in allowing commercial presence of companies from the neighbouring nation in Indian strategic sectors. But their warning is followed by an advice to calibrate any proposed economic action against Chinese investments and imports.

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**Protect India’s Strategic Sectors**

“ What I would be more worried about is cyber security. Can they disrupt your strategic communications systems or your power systems.? We need to have domestic manufacturing capability in domestic strategic sectors,” said Saurav Chandra, who used to head the industry department which is now known as DPIIT (Department For Promotion of Industry & Internal Trade). DPIIT is in charge of foreign investments and promoting commercial ties with India’s trading partners including China.

Jayant Dasgupta, who has rubbed shoulders with trade diplomats from China in Geneva based WTO agrees. “Security concerns should come up as a top priority,” Dasgupta told CNBC-Tv18. He was India’s ambassador to WTO.

According to former telecom secretary R Chandrasekhar, there is a case to keep Chinese telecom equipment manufacturers away from India so as to ring fence the country’s strategic interests. “Security is one of the acceptable reasons under WTO for placing restrictions. We should be concerned about telecom infrastructure especially the core part of the telecom infrastructure,” Chandrasekhar told CNBC-TV18.

These comments came in the backdrop of New Delhi drawing up a blueprint on restricting imports and investments from China. While CNBC-TV18 reported about DPIITs plans on restricting cheap and low quality imports from China , North Block is separately working on plans to restrict Chinese hot money through the Foreign Portfolio Investor (FPI) route.

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DPIIT working on curbing low-quality Chinese imports in the wake of border skirmishes

**Calibrate Curbs on Chinese Imports**

The three former bureaucrats however called for a calibrated response to restrict Chinese goods and investments and suggested avoiding any knee jerk reaction.

“ Revenge is a dish best served cold. We have a huge trade deficit and to handle that we need the entire gamut of geo economic instruments that we have whether it is tariffs or non tariff barriers which includes security clauses, quality control measures and standards . Also we will have to look at their investments, and we will have to look at what kind of contracts that they will be getting into,” Chandra prescribed.

“We need to distinguish between essential and non essential imports from China. For instance, if there are things that we require for keeping our own industry going , whether it is for domestic sector or for exports, we cannot really prevent imports from coming in. So we have to be careful,” Dasgupta added.

“As far as imports are concerned the situation certainly will need to be reviewed. But the litmus test for India is where does a restriction hurt us more than it would hurt China,” said Chandrasekhar. “In electronics, these are complex value chains. You have components, you have intermediaries and raw materials and lot of inter dependence. We have to be careful in which areas we impose both quality or standard restrictions and other barriers,”

CNBC-TV18 has reported that the government is discussing proposals to hike import duty against Chinese items. However, WTO Norms give only limited options like protecting security, public health or environment to hike duties against a specific country.

Trade diplomat Dasgupta believes that such WTO restrictions can be bypassed for now. “WTO itself is in doldrums. When President Trump imposed duties on steel and aluminium on seven countries including India, he invoked national security concerns. This has gone untested at the dispute settlement system of WTO and hence we need not worry about the WTO compliance bit,” he said.

**Be careful in Restricting FPI from China **

While trade restrictions against China are still in the drawing board, India has already imposed government oversight in FDI investments from the neighbouring nation, putting it in the came category as its nemesis Pakistan. Similar restrictions also also being planed on portfolio investments but ex bureaucrats who have handled the subject believes it is easier said than done.

“It wont be easy to handle FPI (restrictions) . Any restrictions being placed won’t harm anyone. But FPI investments are routed through several destinations. It is very difficult to trace the origin of these FPI funds. They could come through Mauritius route to they may come through Singapore” Chandra said.

So can the government use caps on Chinese beneficial ownership in foreign funds to curb FPI? Chandra doesn't believe so. “Administration is the art of what is practical. Once we start looking into beneficial ownership, we don't know what the consequences of that would be” he told CNBC-TV18.

Former telecom secretary Chandrasekhar urged caution on the issue as FPI restrictions on Chinese inbound investments could harm the Indian startup ecosystem. “Putting roadblocks on Chinese Investments at our end will have to be done only in cases where it is likely to transfer ownership. In other areas we have to be careful and not disrupt the startup ecosystem. A large percentage of the unicorns have Chines investments” Chandrasekhar said.

Dasgupta maintains that as of now, there is no evidence of China based funds acquiring controlling stake in Indian startups. “There is no harm in allowing them to come in. But is has to be scrutinised properly,” Dasgupta said.

** Unlikely to see Huawei equipment in Indian 5G **

With border tensions between both the Asian emerging economies showing no signs of thaw, the future of Chinese telecom giant Huawei participating in Indian 5 G trials is at stake. According to Chandrasekhar, who is familiar with the functioning of the Department of Telecom, it is unlikely that the Huawei will be allowed to enter the Indian 5 G telecom equipment space anytime soon, But he warns that keeping the Chinese company out has its own consequences.

“ The abrupt departure of China from participating in 5G trials will certainly be taken note of by other telecom equipment suppliers, In the current situation you cant allow Chinese equipment into core telecom infrastructure because of security concerns. We will have to device strategies to ensure that the prices of telecom equipment are moderated and services are kept affordable” Chandrasekhar said.

First Published:Jun 22, 2020 9:20 PM IST