Arvind's Newsletter

1.Is there a thaw or just pragmatism ?
Indian, Chinese Cos’ JV Proposals May Get Quicker Nods

The government may allow new joint ventures (JVs) between Chinese and Indian companies only if the Indian partner has a majority shareholding, four electronics and automobile industry chief executives who want to set up JVs with Chinese firms told ET.

While decisions will continue to be made on a "case-by-case" basis with a focus on security concerns, sources suggest that this move could enable companies like Xiaomi and other prominent Chinese firms to expand their presence in India, the ToI report said.

2.How India's brain drain and foreign students dip led to $6 billion deficit

The growing demand among Indian students for education at foreign universities, coupled with the declining intake of foreign students by Indian universities, has gradually but steadily created a $6 billion hole in India’s current account balance.

An analysis of the balance of payments (BoP) data shows education-related travel by Indians more than doubled in 10 years—from $2.46 billion in FY15 to $6.3 billion in FY24. The rise in the income level of the Indian middle class and better employment opportunities with higher wages outside India are often cited as reasons behind such a trend.

3.The India-Russia relationship is less than meets the eye: Sadnand Dhume, Wall Street Journal

Indian Prime Minister Narendra Modi’s high-profile visit to Moscow last week set off a firestorm of criticism in the West. But if you look beyond the hyperbole used to describe India-Russia relations, it becomes obvious that there’s less to the connection than meets the eye. As a weakened Russia grows more dependent on China, India has no choice but to draw closer to the U.S.

That Mr. Modi’s first visit to Russia since 2019 drew rebukes should surprise no one. By choosing Russia rather than a neighbouring country for his first bilateral official visit in his third term as prime minister, Mr. Modi elevated the trip’s significance. Thanks to partially overlapping dates with the North Atlantic Treaty Organization’s summit in Washington, Mr. Modi’s Moscow sojourn appeared designed to undermine the Biden administration’s efforts to isolate Russia after its invasion of Ukraine.

To make matters worse, images of Mr. Modi hugging Vladimir Putin, riding in a golf cart around the Russian strongman’s private residence, and accepting Russia’s highest civilian award—the Order of St. Andrew the Apostle—coincided with horrific pictures of a Russian strike on a children’s hospital in Kyiv. In a meeting with Mr. Putin, Mr. Modi said that “when innocent children are killed, the heart bleeds and that pain is very terrifying." But this oblique criticism, which didn’t directly blame Russia for the attack, did nothing to calm critics.

Ukrainian President Volodymyr Zelensky tweeted after the hospital strike that the Modi-Putin hug was “a huge disappointment and a devastating blow to peace efforts." Former Trump national security adviser H.R. McMaster tweeted that it’s “time to reassess the relationship with India based on much lower expectations."

Why would India risk upsetting its Western partners to please Moscow? The reasons are complex. As Indian foreign minister Subrahmanyam Jaishankar has pointed out, India views the Eurasian landmass as dominated by three major powers: China, India and Russia. India’s longstanding rivalry with China—including border tensions that have lasted more than four years—drives its efforts to prevent Moscow from drawing closer to Beijing. Read on

4.Chinese authorities said they would seek to bolster domestic demand and resolve the risks of a mountain of local government and real estate debt torpedoing the economy.

In a statement issued after a high-profile Communist Party meeting on long-term economic priorities, the country’s leaders pledged to “deepen reform.” Details of their priorities are not expected to be outlined for days, but they did confirm that Qin Gang — a former foreign minister who was ousted last year for unspecified health reasons — was formally removed from the elite party Central Committee. As the South China Morning Post noted, however, Qin, who was viewed as close to Chinese leader Xi Jinping, was described as a “comrade”, undermining speculation that he was under investigation.

5.Mayor of Paris Takes an Olympian Plunge in a Beautified Seine

It has been the dream and promise of Paris mayors for decades and a nightmare for Olympic organisers: could the Seine be cleaned up enough to swim in and hold triathlon and other events? For the last 100 years and up until a few days ago, the answer seemed to be no. On Wednesday, however, the city’s mayor, Anne Hidalgo, kept her promise that it would be and she would be one of the first in.

6.Russia is facing a growing shortage of both labor and weaponsafter two and a half years of fighting in Ukraine.

A lack of workers at home, as working-age men are conscripted to the military, is causing severe economic problems, The Bell reported: President Vladimir Putin boasted in May of “almost no unemployment” in Russia, but the shortage is leading to severe inflation.

The country’s stockpile of Soviet-era ordnance is also running out: Russia has lost at least 8000 armoured vehicles, and cannot build new ones in sufficient quantities, The Economist noted, which may mean its armed forces need to switch to a more defensive strategy.

Ukraine has its own problems: Conscription is increasingly difficult, although recent changes to the system have boosted numbers, Reuters reported.

7.The epic bust-up between China and India could be ending opines the Economist

Ask an indian diplomat about relations with China and they will repeat a well-rehearsed mantra: there can be no return to normality until peace is restored on their disputed Himalayan border. That has been the official line for most of the time since 2020, when a deadly clash occurred there between Indian and Chinese troops. On the face of it, India’s stance is a rejection of China’s suggestion that the two countries should set aside the dispute, which has pushed India closer to America, and focus on areas of mutual interest.

Relations are indeed still far from their pre-2020 normality. And they are unlikely to return to it soon. Even so, there has been a quiet yet notable shift in recent months towards a new phase of relations defined by border stability and closer commercial ties. The shift reflects India’s urgent need for Chinese technology, investment and expertise to meet its immediate industrial needs. It is also based on China’s mounting concern about its own economy and escalating trade barriers worldwide.

The first sign of the shift came in November last year, when Indian restrictions on visas for Chinese professionals in some industries were relaxed. That was followed by a softening of rhetoric on China from Narendra Modi, the prime minister. In an interview with Newsweek magazine published on April 10th, weeks before the Indian election, Mr Modi described relations with China as “important and significant” and expressed hope that border stability could be restored. His defence minister, Rajnath Singh, said in late April that border talks were “progressive and satisfactory” and “no fresh tension has come up”. Then in May a new Chinese ambassador, Xu Feihong, arrived in Delhi after a hiatus of 18 months in which China’s embassy there operated without one. Mr Xu has since been on a charm offensive, meeting several members of the political elite.

China has also been unusually restrained in its public statements on India. Xi Jinping, China’s leader, did not congratulate Mr Modi on his re-election in June. However, China gave a relatively low-key response when Mr Modi thanked Taiwan’s new president, Lai Ching-te, for doing so (China claims Taiwan as its territory). And Chinese officials avoided criticising India after an American congressional delegation met the Dalai Lama, who it views as a separatist, there.

One reason for the recalibration is the apparent success of a new mechanism for managing border tensions. It relies on “buffer zones” where both sides withdraw troops and cease all patrols. Through 21 rounds of talks between military commanders, the two sides have already established such zones at five of seven flashpoints and are discussing others, although their strategic importance makes them more contentious.

The other impetus for change is a recent surge of demand for Chinese technology in India, despite official efforts to reduce its economic dependence on its neighbour. After the clash in 2020, India’s government banned 320 Chinese apps, launched tax raids on Chinese companies and introduced new rules requiring government approval for any Chinese investment. Bilateral trade dropped, and Indian officials joined Western counterparts in trying to “de-risk” supply chains.

And yet India’s dependence on Chinese imports has only grown (see chart). In the 2023-24 financial year China edged past America to reclaim its position as India’s top trading partner. India’s imports from China increased to $102bn (about 56% more than in 2020) out of a total $118bn in bilateral trade. India’s trade deficit with China has risen by around 75% since 2020.

More strikingly, China was India’s biggest source of major industrial products in 2023, accounting for around 30% in categories such as electronics, machinery, cars, chemicals and textiles, according to a recent study by the Global Trade Research Initiative (GTRI), a Delhi-based think-tank. The study found that India’s reliance on China was highest in imports of electronics, telecoms and electrical products, at 39%. Machinery was second, at 38%.

A year ago, “the narrative in India was that our imports from China are a worry”, says Ajay Srivastava, an Indian former trade official who runs the GTRI. That narrative has changed over the past two or three months, he adds; now the dominant theme is that not only does India need Chinese products, but it needs Chinese companies to make stuff in India. Under pressure from some Indian firms, the government is planning to relax visa restrictions to allow in more Chinese technicians.

Indian public views of China remain generally hawkish. Diplomatic relations are still touchy too: Mr Modi skipped a summit attended by Mr Xi and Russia’s president, Vladimir Putin, in Kazakhstan in July. And a bilateral Xi-Modi meeting does not seem imminent. But commercial ties look set to expand further in the coming years, as Indian and Chinese companies form joint manufacturing ventures in India, which will probably import machinery and components from China. Many of these ventures involve big and influential Indian companies. They are also in industries such as electrical vehicles and mobile-phone assembly that the government is subsidising to boost manufacturing.

In one high-profile example, SAIC Motor, a state-run Chinese company that owns the mg Motors brand, announced a joint venture in November with India’s JSW Group to produce electric vehicles in Mr Modi’s home state of Gujarat. The venture has since committed to sell a million vehicles annually and capture a third of India’s electric-vehicle market by 2030. JSW also plans to make electrical-vehicle batteries in eastern India, through a technology transfer deal with a Chinese manufacturer.

The trend suggests that some Western firms’ efforts to shift manufacturing to India from China may not result in a clean break. Apple already produces about 14% of its iPhones in India. But the latest public list of Apple suppliers shows that several of its Chinese component-makers have started manufacturing in India. Several more may soon follow suit.

Chinese technology is also integral to India’s infrastructure plans. A single state-run Chinese company, ZPMC, has already provided at least 250 of the cranes at Indian ports. Yet despite security concerns over these hi-tech cranes in India and America, private Indian port operators continue to install them. The Adani Group, one of India’s biggest conglomerates and port operators, took delivery in May of the final six out of 24 such cranes for a new port it is building in Kerala.

On the military front, India continues to hedge against China by enhancing ties with America and its allies. It is also bolstering relations with Russia to try to offset China’s growing influence there, as seen by Mr Modi’s recent bear hug with Mr Putin. And India and China still compete for influence elsewhere in the world.

Still, like its Western counterparts, India’s government has to balance the interests of military chiefs with those of business leaders, who argue that most alternatives to Chinese tech are too costly. Mr Modi will also be mindful that the recent loss of his party’s majority in parliament was partly because of frustration over a shortage of high-quality manufacturing jobs. India’s leader has good reason to fear China. For now, though, he needs it too. ■