Post pandemic world is turning out to be the most eventful in the economic history of the world. The pace at which shift in the nucleus of economic development is being observed in the post-covid world is probably unparalleled in human history. China is getting side-lined from the production side of the supply chains, while India is replacing it at a rapid pace.
Push towards increasing India’s economic clout
If the sincerity of the top echelons of India’s power circles is anything to go by, then it is certain that every organ of Indian polity is now working hard towards giving India the space vacated by China. Recently, a Chief Secretaries’ meeting was held in Delhi. According to a report by The Economic Times, at least 3 presentations focused on how India’s rapid emergence as China’s economic rival.
Two of those presentations were made by private multinational investment banks named JP Morgan Chase from America and Credit Suisse of Switzerland. The third one was by Amitabh Kant, former CEO of NITI Aayog.
Both private companies and experts are rating India highly
JP Morgan’s presentation mainly focused on the sectors in which India can push back against China’s existing dominance. The presentation also outlined how India could increase capital expenditure in sectors such as apparel, ceramics, footwear, leather, iron and steel, furniture and gems and pearls. The presentation noted, “This is India’s Moment. (India can be) a potentially large beneficiary of China + 1 and “friend shoring” as “China (is) vacating low-skilled manufacturing export space,”
Credit Suisse was more aggressive in its viewpoints. It seems to firmly believe that India can be a prominent replacement for China. Their presentation lamented the fact that up until now, India has lagged behind Bangladesh and Vietnam in taking advantage of the situation. It aptly termed it “India’s game to lose”.
Pointing out that India has required technical know-how to take advantage of the situation, Credit Suisse added, “An additional $50b of apparel exports can shift out of China. India has the skills and upstream value chains. Some of the most populous regions with the cheapest labour need hubs. Creation of hubs that may be simple to start with, but within a generation innovate to global leadership (e.g., Japan in the 1950s)”,
Amitabh Kant, on the other hand, provided a more broad-based comparative study of Asian economies to point out where India needs to improve. He pointed out that India’s high share of labour in agriculture is one of the reasons why India is lagging behind China. According to his decades-long comparative study, India needs to invest heavily in its infrastructure growth to emerge as a winner in the race.
The dual advantage of a young labour force
All 3 presentations had one thing in common. India is lagging behind China, but it has the potential and wherewithal to push it back. Currently, the median age in India is 10 years less than in China. That means it has the dual advantage of a more energetic labour force as well as the ability to consume more. This is exactly what makes India lucrative for countries shifting out of China. They can get an efficient labour force, which will save a lot of money, resulting in a large profit. This will increase the tax received by the government and will provide flexibility to the government to charge a tad higher tax rate.
Even if the tax rate does not slightly fit the company’s demands, it can get that lost money from the market. It is pertinent to note that historically companies have mainly feared India’s tax regime. Despite GST as well as a lower rate of corporate tax, the semblance of fear is still there.
But, the Modi government is heavily investing in infrastructure, making it easier for product transportation. The surcharge (as perceived by companies) levied on the products has the potential to be neutralised by the number of products it will be selling in the market. This is what the young population provides for the country.
Add to that the regulatory environment in the country. It is an added advantage for companies looking for a base outside China. On one hand, Xi Jinping’s regime is punishing its business leaders like Jack Ma for success, while on the other hand, India is making it as easy as possible to set up a new factory. Though it’s true that in some sectors, India has been slow to take advantage, through PLI Scheme, India is pitching for gaining market share from those who benefitted from China leaving the market. The recent PLI Scheme for apparel is one of those initiatives designed to push Bangladesh down the ladder in the sector.
Robert Frost had said, “The woods are lovely, dark and deep, But I have promises to keep, And miles to go before I sleep, And miles to go before I sleep”. That is true for India’s economy as well. India has come a long way in eliminating the negative effects of the socialist era. Replacing China is another challenge. However, both can be achieved if India can maintain standardisation in its economic policies.
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