INDIA — An Attractive Investment Destination to those who exit China in the wake of the Coronavirus Crisis?
The COVID-19 Pandemic which initially started in the Hubei province of China has undoubtedly caused havoc with the world. All countries including India are trying hard to overcome the resultant huge economic crisis by encouraging businesses and corporates.
Given China’s bland handling of the pandemic and lingering tensions between the US and China on trade issues, it may prompt Western manufacturers to shift to India if a conducive policy framework is provided. Japan also had started paying its companies to relocate out of China.
The recent behaviour of China indicates that they do not respect others’ desire to stay above the fray. Their attempt to show dominance and call for an “acquiesce or fight ” conveys to the rest of the Indo-Pacific that they are a power not to live in peace with.
Now nearing the same time comes the governments’ announcement of “Aatma Nirbhar Bharat Abhiyan”, the crux of which was the attainment of self-sufficiency and to turn this pandemic into an opportunity. The intended objective of this plan is two-fold.
- First, interim measures such as liquidity infusion and direct cash transfers for the poor will work as shock absorbers for those in acute stress.
- The second, long-term reforms in growth-critical sectors to make them globally competitive and attractive.
THE SILVER LINING
India’s corporate tax cut had already paved attention for investment by the global market.
· In 2005, Chinese motorcycles which were 30% cheaper flooded the Indian market. Despite the high prediction of the demise of Indian manufacturers, their industry broke down within 6 months. This was simply because the Chinese products were no match to the quality of the Indian ones. Today Hero, TVS and Bajaj dominate the world motorcycle market.
· Efforts are being made to develop a land pool double the size of Luxembourg to attract the firms which could be in the plug and play format. Many states like U.P and TN have given incentives for attracting firms like that of easing paperwork; giving easier permission with relaxed criteria.
· Indian manufacturers have boosted the production of medical goods such as masks and look forward to better business opportunities. This comes amid a worldwide shortage because of a surge in demand in China. In the last two months, India had become the second-largest PPE manufacturer in the world with a production of 450,000 PPE kits.
With India looking to lure more than a 1000 American companies out of China, US firms like Johnson and Johnson, Amphenol have shown interest in setting up their firms in India. The interesting fact is that the investments are this time focused not in big cities like Mumbai, Delhi & Bangalore but on small cities in the interiors.
From 2 mobile manufacturing units in 2014 to 268 manufacturing units, with about 95% of mobile phones sold being domestically produced, the “MAKE IN INDIA” star shines brighter for sure.
The tribal women in Chhattisgarh found an opportunity of making hand sanitizers from the mahua flower used for local liquor.
Recently, India’s rank jumped 14 places in the World Bank’s ease of doing business ranking. But despite all these, India fails to attract investments as well, let’s track the path to find out the reasons…
THE ROAD NOT TAKEN
Who is responsible for the Chinese dominance?
The government, corporates or the common people?
1. Lack of infrastructure & What China’s history got to tell us?
Despite having colleges in every nook and corner of India, we lack the actual job-specific skill set and the outdated system in prevalence today needs to be formatted to a practical and applied level. It is of no surprise that China remains an undeniable part of any of the commodities you have at your home.
Therefore the need of the hour tends to be the rebuilding of our national infrastructure as well as educational institutions to be at par with what China has got to show to the world both in terms of knowledge and skill set.
LET’S TRACE THE CHINESE ROAD
Back in the 1970–80s, there came a revolutionary strike off in the global market with the “Chinese economic reform”. The reform took place in two parts:
1. The first phase included de-collectivization of agriculture, the opening up of the country to foreign investment, and permission for entrepreneurs to start businesses (though 87% remained state-owned).
2. The second phase, had privatization and contracting out of much state-owned industry. The major reforms to follow included 1985 lifting of price controls, protectionist policies & regulations. By 2005, the private sector grew as much as 70% of China's’ GDP. That is, from 1978–2013 China saw unprecedented growth with the economy increasing by 9.5% a year. However, the conservative Hu Jintao’s administration controlled the economy more heavily later on and started reversing some reforms.
THE CHINESE DUAL TRACK- TOPIC OF DISCUSS AND DEBATE
China is already wealthier than the rest of the regional powers in the Indo-pacific region. It accumulates more wealth each year than all of the other countries put together. The success of China’s economic policies and the manner of their implementation have resulted in immense changes in Chinese society over the last 40 years.
· At instances, we make fun of Chinese products for their short-lasting life but now,that’s almost a story of the past decade in fact. In terms of quality as well as quantity, China has set its feet to constant improvement. In the field of research too, both medical and technical, they keep a pace and do take a place in the world for the contributions they make.
2. Huge logistics Cost
· India’s logistics sector is highly defragmented; this being a universally known fact. Be it the healthcare, hospitality, or manufacturing industries, logistics companies play one of the most important roles in connecting the organizations to their clients.
· The industry faces challenges like high order intensity ratio, transportation roadblocks, rail tariffs, port and shipping problems, lack of skilled and specialist personnel, slow transition into newer technologies, warehousing and taxation discrepancies, competition with global giants, government policies,ever-increasing fuel needs.
· But the root cause of challenges is about how heavily we try to fix a precise ETA by remedying the said challenges.
3. Obsolete labour laws hampering labour hiring
“We get looted because we left our doors and windows open”
· The incentives offered in India are far below those offered in China and thereby the country needs to amend antiquated land and labour laws.
· When a stockbroker is paid more than an engineer; coding is mistaken for the utmost technology available so far and corporates think local and not act global, and even you the reader yourself don’t want to think of working on a shop floor, all these together contribute to “Chinese dominance” as their “ethical corruption”.
· Now to site an example with the textile industry, the focus should be given on promoting niche areas that cover indigenous artisans, weavers, and craftsmen as they provide a unique identity to the country’s textile output and on enhancing incentives to make Indian products become more price-competitive in the global markets.
4. Lack of clear titles of the land pose problem in land acquisitions.
· Lack of public awareness and opaque systems provided a fertile ground for vested interests to exploit the land regimes and create muddled land titles.
· Two-thirds of all cases pending in civil courts in India relate to land and about 1.3 per cent of gross domestic product is locked in such disputes and complexities. Real estate has now become an area having huge transaction costs due to this absence of a clear system of titling.
· Farmers are also majorly hit due to delays and denials of farm loans, acquisition and compensation-related problems, insurance claim settlements, and so on.
The absence of uniform and clear techno-legal solutions in this complex but crucial area has led to the creation of a parallel tout industry almost everywhere.
.5.Many laws, Many clearances:
Obtaining approvals always remain a hefty task in India, let it be real estate, or to the sanctioning of a new enterprise.
· Surveys convey that even industrial friendly states like Tamil Nadu and Maharashtra require at least 12 permissions.
As contended by N.R. Bhanumurthy, professor at the National Institute of Public Finance and Policy –“India needs to work on many issues such as taxation, regulatory mechanism, factor markets, the financial sector, and data privacy,”
6. Ban product or be better?
“The wallet power can diffuse the bullet war between countries”-
Now, this comes out to be the present-day motto of an average Indian who tweets #boycottchina and let us see how practically it works?
The recent blanket ban on Chinese imports is more or less similar to killing a baby before it is born. Though the confusion of choice between a cheap Chinese product and slightly expensive Indian product gets solved for the Indians who are caught in the attention of ‘lowest price’ commodities, and even the corporations and manufacturers start looking for localisation, nationalism persists only till it doesn’t affect customers’ pocket.
To think of a major example would be the existing and new technologies and various goods of electric vehicles.
· More than 40% of India’s total deficit is made up by China. Right from the screen to which you look at to various machines, organic chemicals, steel products, vehicles and parts and accessories etc… all find a fine touch of China. Therefore, the myth for China to be exporting only consumer goods has absolutely no room.
· The main four categories — electronic, engineering, pharmaceutical and chemical constitute 92% of Chinese export to India.
· FASTRACK
EV car batteries cost about 50% of the electric car price and about 2 of the 5 largest EV battery manufacturers in the world are from China, both in origin and operation. Now to speak of India’s’ position for the same, India does show local capacities for the setup of Giga factories (a measure of battery production capacities), however she needs to overcome the struggle of having a capacity-driven ROI coupled with the challenges in the chemical and mineral supply chain.
Battery technology powers Electric vehicles as well as storage in grid. So, to speak of EV motor and its inseparable partner Motor controllers or about the electric 2-wheeler space, the growth and space China has acquired with time is still a tough nut to crack.
Now to the question, to ban or become better should be our agenda? Or to look on to the confusion of “Is banning essential to make ourselves better?”
Back in history, China didn’t start as a manufacturing hub by banning all its foreign products. What they focused on was “importing”, to learn about the possibilities and track advancements from the imports of the US and Europe.
They always looked forward to “possibilities”, a stage even we relate to now but on a varied level.
India should become the regional anchor to build an Indo-Pacific containment of China. We should go for a regional alliance, and further expand the grouping. The said containment coalition should include countries that are targeted by China with economic coercion.
But rather than an abrupt call to shut down imports from China, if the problems cited above are tackled with a long-term strategy and policy interventions of the government, the dream of an “Aatma Nirbhar Bharat” is still something on the track of being visible. After all, like Xi Jinping himself said- “Great Historical progress always happens after major disasters”. When a country hits rock bottom on a crisis, its people can always strive harder to push it back to a “better normal”.
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