Targeting of China is not a great idea

You don’t have to be a foreign policy expert to sense that India is hopping mad at China, after Beijing successfully scuttled New Delhi’s bid to enter the 48-member Nuclear Suppliers Group, through which countries can trade in and export nuclear technology.

Over the past week, verbal missiles have been flying thick and fast. Expectedly, in politically polarised India, commentators don’t have the same view about what is euphemistically being termed the NSG row. Was India demonstrating a petulance and a sense of entitlement in its attitude towards NSG membership Or was China behaving like a bully and it is time for India to send a tough message Was the NSG saga an example of the Narendra Modi government’s diplomatic enterprise or was it a diplomatic gaffe The questions keep swirling, adding to the heat.

Chinese commentators haven’t helped matters. “China’s action is based on international norms, but India’s reaction seems to indicate their national interests can override principles recognised by the world,” China’s state-owned Global Times noted snarkily. “India’s nationalists should learn how to behave themselves. Now that they wish their country could be a major power, they should know how major powers play their games.”

India’s social media warriors hit back with loud calls to boycott Chinese products. That could have been the classic “gotcha” moment. Only, it’s a little complicated.

As the world knows, boycotting Chinese goods is easier said than done. And it’s not just the iPhone — designed by Apple in California, assembled in China — that is now being used to seek a boycott of all Chinese goods.

India and China are linked in many different ways in strategic spheres. Take just one: medicines. India is among the world’s leading low-cost generic drugmakers. But most of the Active Pharmaceutical Ingredients (API) or bulk drugs necessary to produce these medicines come from just one country: China. APIs are what give a medicine its therapeutic effect.

India’s dependence on China for APIs has been an area of concern for years. Dr Yusuf Hamied, Indian scientist and businessman, and chairman of Cipla, the country’s oldest pharmaceutical company, once famously said, “If China decided one bright day to stop exports to India, we would be finished. The pharma industry is zero, both domestic and export, and we’re looking at that danger objectively.”

The dependence is not one way, by any means. Chinese API makers will be very unhappy if they lost the huge Indian market. But India will be affected worse. It’s in a strategically disadvantageous position because of its dependence on a single country for raw materials for its pharma industry.

As Prime Minister Narendra Modi himself noted in a recent TV interview, it’s naïve to expect that different countries will have the same point of view on any issue. Diplomacy is about trying to find common ground between different points of view. And if such common ground can’t be found, there is a need to think through key issues before sending out tough messages.

How do we plan to secure India’s dominance in generic medicines with the formulation industry depending so heavily on Chinese APIs What happens if China decides to increase the price of APIs or squeeze the supply Further, what if China chooses to start making generic drugs itself What kind of competition will that spell for India’s drugmakers

A 2013 study by the Boston Consulting Group and the Confederation of Indian Industry said total imports of APIs and advanced intermediates had risen at a compound annual growth rate of 18 per cent, from $800 million in 2004 to $3.4 billion in 2013.

A February 2015 policy brief by Research and Information System for Developing Countries (RIS), a New Delhi-based think tank, observed: “India’s growing dependence on imports in bulk drugs would have impact on our pharmaceutical formulation industry, access to medicines, health security and also on the manufacturing sector.”

India’s bulk drug requirements in 2010 were valued at around Rs 24,000 crores, of which imports accounted for about Rs 11,500 crores. The total import of bulk drugs from China as a percentage of total bulk drug imports had risen from 0.3 per cent in 1991 to 47.61 per cent in 2012. In 2011, it was 57.1 per cent.

The Modi government had declared 2015 as the year of bulk drugs, or APIs. This was meant to be a key part of the Make-in-India story. But as numerous media reports have noted, India is far from being self-sufficient in APIs. Today, like it or not, China is a vital piece of the Indian pharma story. If China decides to stop its supply of intermediates and other raw materials to India, it will drastically affect India’s pharma industry and bring it almost to a halt.

The R&D investment (R&D expenditure as a percentage of sales turnover) by the domestic pharma industry as a whole has fallen in recent years. For example, while Dr. Reddy’s Labs claims in its company profile that it incurs R&D expenditure of around 6 per cent, the number of scientists working in the firm has declined from 280 a decade ago to around 30 now.

So we know what is to be done, but we haven’t done it, and we continue to be dependent on China in such a critical industry. In such a situation, we need to remember that talking tough is easier than taking the tough measures which give the tough talk some teeth. Zillions of words have been written on why China is so strongly opposed to India’s NSG membership.

Everyone knows China and India have many unresolved issues. Prime Minister Modi says that in foreign policy it’s not necessary to have similar views to have a conversation, and even when the views are contradictory, problems should be resolved by dialogue. Clearly, it won’t be easy to find common ground on NSG membership, as in several other areas. But high-decibel, public bad-mouthing of each other, instead of adopting a more calibrated and nuanced tone, can only hinder, rather than help the process.

The writer focuses on development issues in India and emerging economies. She can be reached at patralekha.chatterjee@gmail.com