"Can India cash in to China's backlash ?" - Maybe Not.
India is been into an economy-crippling lockdown, but that hasn’t stopped our leadership from dreaming big. With China facing a global backlash, on account of COVID-19, India is hoping to cash in on the anti-China sentiment to replace it as the world’s global factory.
That was one of the takeaways from Prime Minister Narendra Modi’s address to the nation when he asked India to become ‘aatmanirbhar’. Supporting to the PM’s stand, transport minister Nitin Gadkari also called the outbreak a ‘blessing in disguise' for Indian industry - one that could help bring large-scale foreign investments in the country.
Preparations for this are already in place. India is already offering a pool of land to companies interested in moving manufacturing out of China. Uttar Pradesh has formed an economic task force to woo companies eyeing a shift. India has also significantly stepped up its pitch to attract investments, having already reached out,1000 American multinationals.
Many pundits believe that China’s loss can indeed translate to India’s gain. That line of thinking seems to be rooted more in wishful thinking and nationalist myopia than the ground realities.
Infrastructure Void
To be sure, India does have its set of strengths. These include a mixture of high and low skilled labour that is relatively cheap compared to China (even though Chinese labour scores higher on productivity), and the potential to sell to a huge market of 1.2 billion people.
It’s not enough, though. For one, it hasn’t driven business home in the past. Over the last two years, the US-China trade war caused many factories to relocate. However, just 5 percent of these factories came to India, with nearly half of them preferring Vietnam and the remaining one-third moving to Taiwan and Thailand.
So, why didn’t these businesses make a beeline for India? There are many reasons, and chief among them is the huge advantage China occupies when it comes to investment and infrastructure. According to the World Economic Forum Global Competitiveness Report currently, India lags China in every infrastructure category. In terms of GDP, India invests about 30 percent of its GDP, compared with about 50 percent in China. Manufacturing constitutes about 20 percent of the Indian economy; it is about 30 percent of China’s.
Outside the West, China has arguably the best physical infrastructure consistently built over the last four decades. These include the world’s largest expressway and railway networks, and seven out of the world’s top 10 cargo-ports. India’s looks more like the poor country that it still is.
China has also planned its hubs in such a way that businesses and their suppliers are close to each other, something that helps save time and transport costs. India, on the other hand, is still struggling to build world-class infrastructure that could make it as competitive.
India’s biggest infrastructure project — $90 billion Delhi-Mumbai Industrial Corridor (DMIC), which was intended to be developed as a ‘global manufacturing and trading hub’ — still faces legal tussles and pending approvals. After the idea was first raised in 2007, it took about four years for the Cabinet to approve it. In many places, the project still awaits clearances, casting a shadow over its development.
That’s just one example. India may be jumping positions on the World Bank’s ‘ease of doing business’ Index, but setting up a business is still not easy in the country, with delays and lack of investor trust dampening spirits and Government inefficiencies.
Global Outside, Protectionist At Home
Despite the Make in India programme, India seems opposed to seizing opportunities of global trade. Deviating from the path of trade liberalisation that India embarked on since 1991, the government has continued to raise tariffs.
It’s refusal to not engage with other countries in the neighbourhood also smacks of this strategy. After years of negotiation, last year the government abruptly decided to opt out of. The Regional Comprehensive Economic Partnership (RCEP), a free trade agreement with 12 other Asian countries. India’s unwillingness to sign free trade agreements not only means that it stays largely disconnected from the network of global supply chains, but also that it’s exporters are unable to benefit from tariff-free access.
Prime Minister Narendra Modi’s new rallying cry ‘Vocal about local’ epitomises this trade protectionism. The irony of staying protectionist at home while demanding business from the world, is not lost on anyone.
Meanwhile, not the one to let the business go, and in a bid to further open up its market and boost foreign investment, China has introduced a new unified that combines three sets of laws to make it even easier for foreign investors.
Having once overtaken China as the world’s fastest-growing major economy, with consistent growth of 8 percent, India has seen its GDP growth fall to its lowest rate in the last 11 years. To challenge China, India first needs to sort its affairs at home.
This means not giving in to the urge of protectionism, choosing instead to work on structural reforms that make it more competitive. It means strengthening infrastructure and sturdy supply chains to attract more business. It may even mean learning a few lessons from the Chinese growth story. India has the potential for change. The challenge remains to find better ways to speed up the growth.
Until next time.
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With reference to Shikha Sharma's report.
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