Uber’s Exit Shows China’s Mercantilist Leaning; We Should Follow Suit

The impending exit of Uber, the app-based taxi services provider, from China shows the difference between how China supports its local entrepreneurs and how India doesn’t. China follows a mercantilist policy when it comes to encouraging investment, with the dice loaded heavily in favour of the local incumbent while in India there is no such indulgence.

Whether it is Amazon or Facebook or Google or Apple or Uber, local champs have used their better knowledge of culture and strong state support to see off their international rivals.‎ China is a huge violator of World Trade Organisation (WTO) fair trade rules - and has benefited hugely from it.

Contrast that with India. Here Flipkart and Snapdeal are losing local market share to Amazon - with Alibaba of China coming next to challenge both Amazon and the local biggies. Now, Uber will come to India with big bucks and a superior platform to challenge Ola.

While we should see this as India’s greater fairness in dealing with global competitors, it is also a testimony to our lackadaisical attitude to supporting our own businesses, where we have been erecting barriers to ease of doing business - as the various state-level roadblocks to taxi aggregators shows. While India may be rising in rank on the ease of doing business, the real improvement will happen when the corrupt bureaucracy is tamed and regulations seen not as another way to make money, but as vehicles to ensure a level playing field between competitors.

That still leaves us with the problem of competitors from China, who are not only well-funded but also covertly backed by the state. Our trade balance is now becoming more adverse with China, and entire industries are getting hollowed out, with previously manufacturing entities now reduced to relabeling and branding products essentially made in China - as the flood of cheap mobiles indicates.

India’s trade deficit with China was a massive $45 billion in 2015, thanks to the fact that we export basically raw materials while they export finished products and brands. With China slowing, our exports are decelerating, and theirs are still growing as low-cost Chinese brands devastate Indian firms and take huge market shares.

The simple point to underscore is this: this is not sustainable. With fair traders we play fair, and with mercantlist players we turn mercantilist and protectionist. China has already finished off the bulk of our hopes in mass manufacturing, and there is no need to give Chinese branded products a free run here.

It is clear as day that we can never hope to offset a $45 billion trade disadvantage without using non-tariff protectionist measures even though this will push up costs ‎for us in the short run. Without a clear Chinese plan to increase imports from India in a specified timeframe, we are essentially mortgaging our future to that half-enemy.

National interest and security demands such a response. The other option is to give China a share in our infrastructure markets, where its money should be invested and sub-contracts given to Indian construction players, where the returns should depend on usage of that infrastructure. For a share of the Indian pie, the market risks should be shifted to China. The Chinese should be allowed to invest their humongous trade surplus on Indian infrastructure and obtain incomes in rupees. We have to move out of dollar trade with China and rupee-ise it substantially.

As for the huge mobile market deficit, we should give them access only if they invest in India for manufacturing their products.

We should play the game the way China has done in the past. We must think Indian interest when it comes to China, which was the arch nationalist in a period of globalisation. ‎Now, with protectionist sentiment growing, we should guard our flanks better.