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It's now or never: India needs a hard sell to capitalise on US-China trade war

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It's now or never: India needs a hard sell to capitalise on US-China trade war

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The trade spat between the US and China has led many global corporations to consider alternative supply bases to de-risk their businesses. Unfortunately, this 'China plus one' strategy is benefitting nations like Vietnam, not India.

It's now or never: India needs a hard sell to capitalise on US-China trade war
There is a shift away from China. The trade spat between the US and China has led many global corporations to consider alternative supply bases to de-risk their businesses. Unfortunately, this 'China plus one' strategy is benefitting nations like Vietnam, not India.
According to reports, Samsung is making smartphones there, Apple’s Airpods have started rolling off lines there and Google’s Pixel phones will soon. Amazon and Home Depot have stepped up sourcing, and all this is happening despite Vietnam’s constraints around labour to scale. What’s even more worrying in this context is India slipping 10 places on the global competitiveness index, and being counted as one of the worst performers among BRICS nations, even as others are moving rapidly up.
India’s time to grasp the opportunity and exploit it is now — before the trade issues between the US and China get resolved and corporations step off the gas on their de-risking plans. For years, India has been a large exporter of yarn to China, which exports finished garments and earns higher margins. Today, India has an opportunity to not just eat into a share of the global garments business, but establish itself as a quality brand in the premium segment given its strong traditional artisanal skills and GIs. Needless to say, this being a labour-intensive sector has high employment creation potential. Bespoke is premium today, and India has tremendous tailoring talent.
A review of historical data shows that FDI has played a key role in growth of economies — China saw its peak 10.6 percent GDP growth in 2010 when FDI soared to 4 percent of GDP. A review of historical data shows that FDI has played a key role in growth of economies — China saw its peak 10.6 percent GDP growth in 2010 when FDI soared to 4 percent of GDP.
There are opportunities in several other sectors too — electricals, electronics and engineering among others, given India’s large technically qualified talent pool, which experts tell me is drawing many European companies to Indian shores. Traction in these segments can also help correct our trade imbalance—India spent $52 billion on imports of electrical and electronic items in 2018-19, over 10 percent of the country’s total import bill — a key area of concern for the economy.
The government’s intent is clearly there, with its Make in India programme, but the follow-through is clearly lacking. India needs large doses of foreign direct investment (FDI) to pull it out of the slowdown and put it back on the growth plane. A review of historical data shows that FDI has played a key role in growth of economies — China saw its peak 10.6 percent GDP growth in 2010 when FDI soared to 4 percent of GDP. What’s more, India despite being a developing economy has seen a low net FDI to GDP ratio of 1.3 percent to 2 percent over the past eight years. Rich nations like Germany, France and the UK draw over 2 percent of GDP as FDI, even the US got 1.3 percent of GDP as net FDI in 2018. And if we look at FDI competing nations like Vietnam, the number jumps to over 6 percent.
The Government’s intent is clearly there, with its Make in India programme, but the follow-through is clearly lacking. India needs large doses of foreign direct investment (FDI) to pull it out of the slowdown and put it back on the growth plane. The government’s intent is clearly there, with its Make in India programme, but the follow-through is clearly lacking. India needs large doses of foreign direct investment (FDI) to pull it out of the slowdown and put it back on the growth plane.
For India, time is running out. Capital is scarce, and despite the recent tax cuts, no capital investments are likely by domestic companies in the near term, as they are still repairing broken balance sheets and struggling with low capacity utilisation levels. Besides, what’s being consumed in the country isn’t being produced here — smartphones, i-pads, fitbits, telecom gear, solar panels, et al.
The only other source of capital is private equity, and that’s impatient money looking for high returns and usually not backed by entrepreneurial talent. Such money is mostly targeted at acquiring slices of existing businesses rather than building new ones — even though this does free up capital for further productive use.
India spent $52 billion on imports of electrical and electronic items in 2018-19, over 10 percent of the country’s total import bill—a key area of concern for the economy. India spent $52 billion on imports of electrical and electronic items in 2018-19, over 10 percent of the country’s total import bill—a key area of concern for the economy.
What India needs is big corporations to come and commit large sums in setting up manufacturing capacities, to commit to setting up R&D centres to develop the knowledge capital, to make India their base for shipments to large parts of the world. India has the resources in terms of land and labour, all that’s required for the capital to come in is an enabling environment (ease of investment, friendly laws and policy certainty) and a sincere effort to develop world-class infrastructure.
But this won’t happen by itself. Someone needs to go and hard sell India. The shift from China is a once-in-a-lifetime opportunity and we mustn’t let it slip through the cracks.
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