Can India be the New China? | by Ekta Gola

The World Economy in Shambles

In the wake of the global pandemic, the world economy is stumbling through its way out of the coronavirus outbreak. The virus was first detected in Wuhan, China and has claimed 2,00,000+ lives globally. The epicenter of the pandemic restricted the movement of millions of people and suspended business activities in order to contain the COVID-19 outbreak. The second largest economy of the world seemed to be grappling with the virus and resultantly, the world economy saw a downfall too. Economies having close links with China, such as Vietnam, Singapore and South Korea, are adversely affected by the manufacturing sector shutdown in the country.

The Chinese manufacturing sector has been highly technology driven and is an important center for the development of core parts of many gadgets and automobiles. Resultantly, the Global Supply Chain is severely affected by the outbreak. Fiat Chrysler Automobiles NV announced on February 14 that “it is temporarily halting production at a car factory in Serbia because it can’t get parts from China.” Similarly, Hyundai said that it “decided to suspend its production lines from operating at its plants in Korea … due to disruptions in the supply of parts resulting from the coronavirus outbreak in China.” Apple too, announced that it expects lower earnings this quarter owing to constrained global supply of Iphones. Other commodities such as packaged food and the garment industry also seem to be affected adversely because China is both a mammoth supplier of goods and a giant demand generator for the same too. This global pandemic is an opportunity for the United States and Europe to take notice of their excessive dependencies on China for crucial supply chains that reach from pharmaceuticals to "rare earth" materials which are used in almost all their high-tech industries. China is also the largest and sometimes the only global supplier for the active ingredients of some vital medications.

What has China been doing differently?

Amidst this pandemic outbreak, a pertinent question arises ‘Can India be the new global manufacturing capital?’. Does India have the necessary technology and infrastructure to take up this important global position? Does India have the required level of expertise to actually cash in on the decline in the Chinese manufacturing sector?

Over the last two decades, China has been the hardware base of the world, while India has been the software base. Interestingly, India’s manufacturing labour cost in 2015 stood at $1.72/hour compared to $37.96/hour for the US. Even China’s cost is almost double that of India. Let’s take a look at what China has been doing all this while to reach the top rung of the world ladder.

In the late 1980s, a comparison between India and China would have yielded the result that the science and technology capabilities of the two countries were almost equal. In the 1990s, the Chinese invested heavily in education and research and after that China started moving at a pace which India couldn’t match. The Chinese leaders ensured that science and technology became the drivers of their economy. Heavy investment was made on infrastructure and still continues to be one of China’s top priority segments. One Belt One Road (OBOR) initiative is well indicative of it. Other drivers of the Chinese manufacturing industry include cheap labour costs, strong business ecosystem, low taxes and duties and competitive currency practices.

The Chinese business ecosystem has constantly been evolving. For instance, Shenzhen, a city in China is a hub for the electronics industry. It supports the manufacturing supply chain of the country. These supply chain efficiencies help companies like Apple Inc. to keep their costs low and margins high. It wouldn’t be an exaggeration to call China ‘the bedrock of the Global Supply Chain’.

As can be seen in the given figures, India has been lagging behind China in various aspects of Output and Research.

Coming to the present state of affairs, 5G is a clear battleground between China and the U.S.. Huawei and GTE, from China, are the main players presently, while the U.S. doesn’t even have a 5G player yet. China has been spending huge amounts on 5G wireless infrastructure. The Chinese entrepreneurs and the tech sector are highly ambitious and continuously work on making technology their economy’s catalyst.

Technology will lead the way

Even though a gloomy picture seems to have been painted on India Inc, amidst

the crisis, it has the capacity to grow into a global giant which can cater to the world’s gigantic demand for goods. Advanced technologies like Artificial Intelligence (AI), machine learning (ML), the Internet of Things (IoT), robotics, etc., are gradually driving transformation across various industries such as healthcare, manufacturing, transportation, and retail, in India. New avenues for Indian manufacturing companies have been opened to design products and to come up with disruptive solutions that have global potential. For instance, some Indian technology manufacturers are leveraging robotics and have not just transformed warehousing but are ready to change other areas such as shipping and logistics, automobile and manufacturing units, etc. and many Indian start ups are operating in deep-technology areas. The technology prowess of India and a proliferating startup community has created the right environment to drive innovation in the high-tech industry, which will further add to the growth of the technology manufacturing sector. The Indian government has also set an aggressive target of increasing the manufacturing share to 25% of GDP by 2025.

In order to up the scale of manufacturing in India, we need to extend our horizons beyond the domestic market and this cannot happen without government patronage. Providing incentives to Indian companies to export electronic components will encourage them to tap global markets, resulting in a surge in FDI in the sector. The same chain of actions was followed in the auto industry. Global investors can be wooed by improving the overall ease of doing business. India stood 100th in the World Bank’s Ease of Doing Business global rankings due to sustained business reforms. However, only a good ranking wouldn’t suffice. The investors look at the entire picture with a detailed view of every aspect. Lowering logistics costs and making sure that contracts are enforced properly are the other important areas where the government can work, making domestic goods more competitive globally.

The uncertain future

One of the important lessons that India can learn from what China has been doing till date is “make technology the pivotal point for almost all industries”. While India has begun moving on this path, a long way still lies ahead of it. Large scale manufacturing plants which would cater to the humongous domestic demand along with the global demand are a not so pipe dream and incentives for exports will be the cherry on the cake. However, the Chinese economy has already started reviving and coronavirus cases in India are still on the rising part of the curve. The future stands at a precarious angle.