- The recent border clash is a turning point in India's bilateral relationship with China, but it is not a breaking point, according to former Indian ambassador to China, Nirupama Rao.
- Last week's face-off high in the Himalayas left 20 Indian soldiers dead while Beijing did not reveal how many of its troops died.
- Following the clash, anti-China sentiment in India has grown, with calls to boycott Chinese products sold in India.
- But experts say that it will be difficult for New Delhi to suddenly severe or reduce trade and economic ties with its neighbor.
The border clash between India and China that killed 20 Indian soldiers is going to be a "turning point" in bilateral relations between the two Asian giants, a former Indian ambassador to China told CNBC.
While India said both sides suffered casualties, China did not disclose how many of its soldiers died during the clash. The encounter sparked concern and soured public sentiment even as the two nuclear powers moved to deescalate tensions.
"This is definitely a turning point in the bilateral relations, but I wouldn't call it a breaking point," said Nirupama Rao, who served as India's ambassador to China between 2006 to 2009.
Speaking to CNBC's "Street Signs" on Wednesday, she said there were indications that both countries had a constructive discussion and attempted to disengage from the disputed areas. Still, she said, the escalated violence — not seen in decades — cast a "long shadow" on the relationship.
On Wednesday, the Chinese defense ministry said, "The responsibility for the China-Indian border conflict lies entirely with India, China hopes to maintain peace in the border areas," according to a CNBC translation of the comments.
In recent weeks, anti-China sentiment in India has grown, with people calling for a boycott of Chinese products in the country. But experts say that it will be difficult for India to suddenly sever or reduce trade and economic ties with its neighbor.
"India's exposure to China is asymmetric in terms of trade and investments," said Radhika Rao, an economist at Singapore's DBS Group, who is not related to the ambassador.
"China displaced the European Union to emerge as India's biggest importing partner six years back," she said in a Tuesday note.
India imported more than $62 billion worth of goods from China between April 2019 to February this year, and exported only around $15.5 billion worth of products, Indian government data showed.
Most of India's imports from China are manufactured items such as electronics and electrical equipment, alongside organic chemicals, according to Rao from DBS. She explained that China also has notable portfolio investments in India's technology sector, with top start-ups like Paytm, Ola, Swiggy and Zomato all backed by Chinese investors.
New Delhi had already introduced restrictive measures on Chinese foreign direct investments before last week's border clash.
"As far as trade and economic and investment relations go, there is a very complex web of intermeshing now between the two countries," Ambassador Rao said, explaining that decoupling, or disengagement from China, is not an easy task. It comes despite growing calls from the public for India to do something about balancing its economic ties better and preserving its national interest.
She added that there will likely be steps taken to curb Chinese presence in areas that affect India's security, in fields such as telecommunications and critical infrastructure.
India's foreign policy has mostly remained strategically autonomous, which means Prime Minister Narendra Modi's government has to balance bilateral relations with the United States, as well as China and Russia.
The border clash may potentially convince India to break away from its decades-long practice of trying not to be connected to any specific alliance structure that's opposed to or in favor of a third country, Rodger Baker, senior vice president of strategic analysis at Stratfor, told CNBC's "Squawk Box" on Wednesday.
"If it strengthens India's ties with Australia, with Japan, with the United States, with the Quad, then that ultimately is a risk for the Chinese out of what's happened here at the border," he said, referring to the informal alliance between the four countries that aims to promote a free and open Indo-Pacific region.
Ambassador Rao said that if India pursues closer ties with the U.S., it may cause concern as China "tends to be insecure about these things."
"But India can only be expected to protect and safeguard its interests in what is emerging as a very sensitive situation in the bilateral relationship," she said. "Even as we promote and pursue strategic autonomy, we will have to review and reconsider how our relations with the rest of the world are configured."
India's foreign minister Subrahmanyam Jaishankar on Tuesday met with his counterparts in Russia and China virtually, and said, "Respecting international law, recognizing the legitimate interests of partners, supporting multilateralism and promoting common good are the only way of building a durable world order."
— CNBC's Lilian Wu contributed to this report.