During that phase, India-US cooperation, and American encouragement of India’s role as a regional leader could help foster a global order that maintains ascendancy of democracies, especially against the rise of an authoritarian China.

**Chinese influence in the region **

China is clearly preparing for the changes that the world faces in the aftermath of the havoc wreaked by Covid-19. With one of the world’s largest foreign currency reserves and a centrally directed economy with capitalist features, China sees itself as having an economic advantage.

Beijing is also building its military capabilities, and developing alliances, to flex its muscle as a global power, in opposition to the United States. Its influence is already significant in Asia and Africa.

India, the largest country in South Asia with a population matching China’s, is ideally suited to take a central role in rebuilding its neighbourhood because of its central location and its larger economy relative to others in the region. It would be in the interest of the US to encourage this outcome, with a view that it will enable an Indian challenge to China.

The Chinese government has always preferred to deal with countries unilaterally — dealing with Nepal, not South Asia, Vietnam not South East Asia, or Germany not the European Union.

China understands the challenge it faces if India is able to play the role of regional hegemon. For the last few decades, Beijing has expanded its influence in South Asia and right now, is stepping in more aggressively to assist governments — weakened during Covid — with an intention to control them in the future.

China’s Ambassador to Nepal is trying to replicate her counterpart in Pakistan and is dabbling in Nepalese domestic politics. In early May, tensions along the unresolved India-China border escalated in the Sikkim region.

China has long objected to Sikkim’s integration into India and has claimed its territory as Chinese. While the immediate tensions have been lowered, such incidents will only increase in the long-term.

India against China

India was concerned that in the economic aftermath of the Covid-19 crisis, Chinese companies may attempt to take over Indian companies. This led New Delhi to change Foreign Direct Investment (FDI) rules in end-April.

The new rules mandate that any companies from “border-sharing countries” will need the government’s approval prior to making investments in the country. Beijing immediately pushed back against the new rules calling them “discriminatory”.

While Delhi has been reluctant to openly blame Beijing for the Covid-19 pandemic, it has sent sufficient signals. India has for decades had a ‘One China’ policy, while maintaining relations with Taiwan. In recent years, there has been a rising demand in Indian policy circles that unless China recognises a ‘One India’ policy – namely, gives up claim to Indian territory — India should not accept the ‘One China’ policy either.

This idea has gained wider support in the broader Indian intelligentsia post- Covid-19 crisis, including demands that Taiwan be allowed to participate in the World Health Organization (WHO). With India heading the executive board of WHO at the next meeting, there are those arguing that Delhi should agree to Taiwan returning as an observer.

The US has long asked India to step up and play a bigger role in its region and the Indo-Pacific. Under the Trump administration, Washington has asked India to stand up to China. But Delhi can do that only with economic and technological support from the US.

**Attracting foreign companies **

Secretary of State Mike Pompeo and other US government officials have often spoken of the need to “ restructure ” global supply change chains and reduce dependence on China.

American companies have indicated their desire to move out of China and this process has been strengthened after Covid-19. The government of Japan is reportedly going to pay its companies to leave China.

Although these companies could choose from any of the Asian countries offering lower wages and other incentives, encouraging them to relocate to India could serve a strategic purpose. Of course, India would have to make the proposition economically attractive.

In his 12 May 2020 stimulus package of Rs 20 lakh crore, Prime Minister Narendra Modi committed his government to helping India’s small-scale sector — the Micro, Small, and Medium Enterprises, MSME.

Labour market reforms are also being discussed. On 8-9 May, three BJP-led states, Gujarat, Madhya Pradesh and Uttar Pradesh, announced that new manufacturing plants would be exempt from almost all existing labour laws for a period of three years.

Another proposal to boost manufacturing is a finance ministry proposal to offer tax exemptions up to 10 years to any companies that establish new factories in labour-intensive areas, such as textiles, food processing, leather and footwear.

If these proposals and ordinances actualise, they could provide the ease of business, tax incentives, and labour market reforms that both domestic and foreign companies have been seeking from New Delhi for years.

An Indian willingness to treat American companies as preferred investors, and a US commitment to encourage American investment in India as a strategic priority, could enhance India’s capacities in meeting China’s rising challenge.

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