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The Salience of Interdependence in India China Economic Relations, 1992 -2008

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  • February 25, 2011
    Fellows' Seminar

    Chairperson: Professor V P Dutt
    Discussants: Shri Ravi Bhoothalingam & Dr Partha Mukhopadhyay

    The paper attempted to answer 3 key questions:

    1. What has been the quality and content of trade and investment (beyond an ostensible focus on nominal values) in the India-China dyad?
    2. Has high “economic interaction” translated to operationalization of “economic interdependence” in the India-China dyad?
    3. How could the economic partnership be steered to create “constraint interdependence”?

    The author organized his argument by re-visiting the scholarship on economic interdependence in International Relations theory, recounting the “Liberal” versus “Realist” prioritization of trade and its relationship with conflict. He outlined the framework that he employed in his study (Crescenzi’s Exit cost-Exit threshold model), which deals more directly with the issue of opertionalization of interdependence, and applied the same to the India-China dyad (focusing chiefly on India’s chief product export in its trade basket with China – Iron Ore). He went on identify the key impediments to engendering further interdependence from the Indian and Chinese side using case analyses of Chinese investment in India (telecom sector), and impediments to India’s export expansion (pharma sector) in China.

    By examining key phases of the trade and investment patterns, the author argued that operationalization of interdependence was discernible in this dyad post-2004 i.e. the costs incurred by each state (both China and India) to remove itself from the dyad to have increased post-2004, while much of the earlier phase represented economic interaction which, unlike economic interdependence, was relatively costless to change. In particular, he drew out a schema which applied the Crescenzian framework for India-China economic interdependence to reflect different equilibria obtained in various phases of economic interaction, and argued that the relationship had moved away from “escalation” (high-level conflict; 1949-1992), and was currently moving towards the second notional form of “bargaining equilibrium (1st notional form 1992-2004; post-2004 moves towards second notional form). The author concluded by outlining five key recommendations, which could steer the relationship towards some sort of “constraint equilibrium” in the future (when economic interdependence constrains the behavior of “challengers”, and ultimately induces partners to eschew conflict scenarios), and argued that the interim of the next 3-4 decades were crucial for India to shape its economic relationship with China. By employing the framework of exit costs and exit threshold, the author argued that an increasing focus on core sectors of competence could be obtained, which becomes instrumental in teasing out a more complex understanding of when economic interdependence constrains states from entering into high levels of political conflict.

    Discussants’ comments


    a) Ravi Bhoothalingam [former President, The Oberoi Group of Hotels; former Director of ITC Limited, Calcutta]
    Mr Bhoothalingam welcomed the approach in the paper viz analysis at the dyadic level, and pointed out that such an approach brought into focus similar complexities and patterns that were discernible in other dyads (China-Japan, China-Korea, China-Taiwan and even China-US) which made the study of economic interdependence and conflict in the India-China dyad more relevant. He pointed out, however, that dyadic relationships also exhibited the mathematical “step-function” phenomena, wherein the economic relationship and political relationship were interrupted by a plateau (citing India-China relations improving until the 1998 nuclear tests, then exhibiting a plateau where accusations of Chinese goods harming Indian manufacturing were rife owing to business pressure, followed again by the rising curve of improved bilateral interaction in 2003 and thereonwards). This according to him was demonstrative of the absence of linearity in the economic and political trajectories in a relationship. He identified institutional support as a key factor missing in the Indian approach to dealing with China (knowledgebase, language capacity, Joint-research avenues) even as several complementarities existed (entertainment, education, consulting, Infrastructure, among others) for both countries to build on the relationship.

    b) Dr Partha Mukhopadhyay [Economist, currently working as Senior Research Fellow with the Centre for Policy Research in New Delhi]
    Dr Mukhopadhyay complimented the organization of the argument employed by the author in his paper by applying a framework on the operationalization of interdependence, focusing on sectoral evidence to support the claim, and identifying the problem areas. He, however, pointed out that the framework could be expanded further to explain the switch in “bargaining” outcomes, which was also possible (economic payoffs reflecting the switch in “target” and “challenger”). He wanted the author to incorporate the authors’ personal experiences in China in the introduction segment, and cited the need to update the segment on the healthcare and pharma sector with primary data, and summarise individual segments in the paper by reverting to the framework employed in the study for conciseness. He felt that disaggregating the hurdles (for instance Indian entry into the active pharmaceutical ingredients’ space, use of guanxi by Chinese telecom companies, China’s employment challenges, etc) would bring further clarity on the challenges that lie ahead in the relationship.


    a) Dr R. N. Das
    Dr Das complimented the author on the paper. He suggested the need to restructure the introduction to reflect the dyadic focus and framework at the outset of the study. In its present structure, the paper outlines the debate in IR, which, according to him, could be preceded by the restructured introduction. He also pointed out the need to update some references and citations.

    b) Dr. G. Balachandran
    Dr Balachandran felt that the two notional forms suggested in the “bargaining equilibrium” status of the Crescenzian framework (original framework) were conflicting, and that the measurement of “exit cost thresholds” was problematic. According to him, an entire of set of vectors for goods in the bilateral trade basket should be employed, to ultimately arrive at a unique scalar. Due to these methodological issues in the original framework, he found a disconnect between segment 1 of the paper (where the author outlines the framework) and the remaining 4 segments of the paper weak (application of the framework to the India-China dyad). The latter 4 segments, he clarified, did stand outstandingly well, but it was the connection from the 1st to the remaining 4 segments which was problematic, according to Dr Balachandran.

    The author clarified that the Crescenzian framework was being applied in the India-China context only with respect to the largest trade category reflected in top export commodity and top import commodity, and that the paper was not trying to generate a metric of interdependence based on ‘n’- number of goods, which could be a task of future research. The author acknowledged the need to strengthen the connection between segment 1 and the remaining 4 segments in terms of outlining the Crescenzian framework with the necessary caveats.

    This was followed by the Q&A segment saw deliberations from the audience on issues such as the interplay of dyadic analysis and the “globalised” world at the systemic level, concerns on China’s intentions, effect of interdependence on “core” political concerns, among other issues.