'China not a natural alliance': Raghuram Rajan says Xi-Modi meeting a signal to US 

Former RBI Governor Raghuram Rajan has stated that India's "natural alliance" is not with China, citing deep historical mistrust between the two neighbours. "I don't think India's natural alliance is with China. There's too much of a history between the two countries for it to disappear in the space of a few months or because of frictions with the United States," Rajan said in a podcast conversation with SparX's Mukesh Bansal. 

The economist cautioned that while friendship with Beijing cannot be ruled out, it would require years of confidence-building measures. "Friendship comes from a long history of confidence-building measures and a history of good behavior vis-à-vis each other. I think it's too soon to say that we are strong friends with China," he said.

Rajan noted that the common factor drawing India, Russia, and China together at forums like the Shanghai Cooperation Organisation is "a kind of unease with what's going on in the United States." But he underlined that India's deeper bonds lie elsewhere. "There are many more commonalities between India and the United States — both being democracies. There's a long history of cooperation between the two countries. Remember the grain that came from the United States to feed our people in the 1960s...And of course many Indians today occupy high positions in the United States both in the government and in the private sector," he said.

On whether India could leverage closer trade ties with China in the short run to offset U.S. tariffs, Rajan dismissed the idea. "Any kind of trade relationship takes some time to establish. We are trying to sell goods which the US doesn't want to take. And China also is trying to sell goods that the US doesn't want to take. Establishing those relationships takes a while and it's not going to happen overnight," he said. He added that India may find small openings — “maybe some scope for sending some of our shrimps to China if they will take them” — but stressed that the real solution lies in resolving tariff disputes with Washington.

Still, Rajan said India and China could gradually explore deeper engagement. "Over time if the two countries work together on easing some of the trade and investment impairments, both will develop alternatives. We are going to be the third largest economy in the world. They are the second, probably soon to be first. We could welcome much more Chinese investment which is state-of-the-art and hopefully they will help us learn some of the arts of manufacturing which they've done fantastically well. But it has to be a two-way street," he said.

Asked if Beijing has strong incentives to invest in a closer economic relationship with New Delhi, Rajan replied: "India is a prize that both countries, the US and China, would like to have if they don't have to expend too much to get it. We are a four trillion dollar economy now — that's not to be sneezed at. India is growing, India is a neighbour, and India is a prize in the geostrategic play that is going on that any side would like to have on its side."

Rajan emphasised that India must recognise its relative size while playing its cards strategically. "The size of the Indian domestic market is something that all the countries which have weak demand now, given that the US is erecting barriers, are looking to target and so we can use that as a strategic sort of weapon — opening it up more to countries that offer us a better deal," he said.

He added that India's focus should be on learning from successful partners. "We've done a very good job working with Japan. There's substantial amounts of Japanese investment in India. That is the kind of model we have to think of, where Japanese investment comes in, trains our workers, and makes quasi-Japanese Indian firms… Maruti Suzuki being an example. More joint ventures of that kind we need to aim for," Rajan said.