China Is A Forced Choice, A Rogue Trader; India Not An ‘Automatic’ Alternative

A decade is an eternity in global trade. 

Manufacturing sector has undergone a tumultuous decade and evolving. 

Its role has changed too.

Manufacturing is ‘progress’ multiplier, employment generator, and a growth driver. And much more. It stands for productivity, innovation and trade. It feeds the service sector, is a wealth creator.

Manufacturers will have substantial new opportunities; sparked by innovation and the emergence of a new global consuming class. 

While we were rejoicing the progress as a result of reforms, the developed nations, particularly China envisioned the big picture. It focused on innovation, scale, productivity and R&D to the ‘highway’ of competitiveness and has perched itself as the ‘workshop’ of the world and eventual prosperity.

We remain at the beginning of the curve, our share - a minuscule 2 per cent. 

Boardroom is the new battlefield

We focussed on ‘serving’ the world. Manufacturing was reduced to a ‘path to urbanisation’ from subsistence agriculture. Admittedly many leapt out of poverty, into dignity. 

In today’s generation war is a lose-lose. The global trade war is more. The winner is comforted with a consolation prize.

People of all hues are clamouring to boycott Chinese goods. The noise is getting shriller by the day, many are taken in.

The globe is concerned too. 

About 16 trillion and a fifth of the world economy is at play and account for 40% of the people. Large economies are intertwined; both India and China are engines and the growth drivers and have the potential to grow for the next 50 years. 

We can. Should we?

Goaded by the frenzy, our policymakers may resort to easy and popular panacea i.e. ‘ban Chinese, adopt Indian’. At stake is about INR 1.5 lakh crores of import.

Boycotting ‘made in China’ has taken an emotional fervour. Jingoism is adding to the clamour. Imports are the visible end of the trade. But what most don’t realise it is that these ‘cheap’ imports make our exports competitive.

We must face harsh facts.

Why is it that despite being the third-largest economy our share in the global trade is less than 2%?

Cutting the nose to spite the face

China has ‘replaced’ our domestic production across 500 categories and 3000 products, including mobile phones, toys and several sundry household items. Banning these items won’t hurt us. 

China will bleed us by ‘denying’ us the ‘intermarries’ that ‘nourish’ our exports, undermining competitiveness. Sectors like pharma, automobile, electronics, telecommunications will be on their knees, spiralling bankruptcies. The cascading effect may wipe out about 15% of the profit making MSMEs and millions unemployed. 

The consumers will suffer too. Banning cheaper imports could cause inflation, hurting the middle class and denying the poorest cheaper consumables.

At the macro level import substitution will mean reallocating resources that can be better and more meaningfully deployed. 

Is this in our interest? The solution lies not in boycotting but in a pragmatic and holistic plan. 

Real problems, lazy solution

We are not competitive because our policies have created bottlenecks. 

Our governments chose the lazy solution; jugaad, short-termism and populist decisions making. It offered subsidy and protectionism, encouraged incompetent policymakers and pushed disbanded & sketchy legislation. 

It regulated, undermined dynamism, stifled innovation and ‘arranged’ marriages. It often ‘bailed’ the cronies and denied & hindered the competent. We monitored when nourishment was needed, promoted domestic rivalry at the cost of healthy competition.

Our implementation is mostly tinkered, dismantled and predicated around several wrongs and often dodgy assumptions. We focus more on substantial input and ‘quick’ outcome. 

The vagary of the political cycle does the rest.

Atma Nirbharata does not make ‘everything’ 

Economies take time and leadership to build. China planned it for decades; implemented rapidly and better.

Fortunately, India is presently better off compared to China when they planned global domination.  Our economy is at the inflection point. We are consumer-led, domestically dependent.  Demography supports us. Democracy is healthy.

However ‘Make in India’ should be an abject lesson. 

Modern manufacturing necessitates specialised and cutting-edge technology. Quality is the currency to compete; capital & skill the key differentiators. 

Our labour laws are archaic and unfair. Tax structure is too complex. Land acquisition is fraught with political overtones and a cesspool. The government’s approach to trade negotiation is indifferent, timid, often aggressive, but always inadequate. 

Infrastructure is the big elephant in the room.

Bureaucratic overreach and inspector raj only diminish competitiveness.

The industry has a mountain to move

Our industries are precariously leveraged. Debt is expensive. Equity is scarce. The skill ecosystem is 20 years behind time, with the best opting to ‘serve’  and the rest choosing to ‘code’ for the USA market. Even the shop floor lacks ‘trained and technical’; with most preferring ‘white’ collar and ‘call’ centres.

The young don’t see manufacturing as a career option.

Our supply chain is broken. Actually, never sufficiently built.  A Crux insight across 18 major sectors articulates it well. Every 2% incremental share of the global manufacturing market will add 20 million jobs and is a threefold multiplier. It highlights the domestic bottlenecks as a result of poor policy frameworks costs the economy about 10% of the GDP. 

The bottlenecks add to the woe. 

We have a competitive advantage in about 10 sectors and must focus on those. The Crux study indicates that an intensive approach across 6 sectors (especially labour intensive) where we have the strength and the base to be competitive, with adequate government support, alone will create 4 million jobs and reduce dependence on Chinese imports by 70%. We could be more completive if the government could negotiate trade and tariff better especially where we lose out marginally e.g. textile sector.

The missing middle

The industry lacks the support of effective tributaries and suppliers, reducing competitiveness, subtracting value and hurting growth. Similarly, they face regulatory hurdles and policy upheavals when the dispensation changes. There is more collateral damage. 

Rupee is overvalued but needs a calibrated call. The exchange rate is a double-edged sword; cheaper rupee would make our exports competitive, the stronger rupee will cheapen imported intermediary. It is a delicate balance.

India not an ‘automatic’ alternative

China is a ‘forced’ choice for most economies. The product quality is poor, trade practices unethical. It is a bully; and a rogue trader. India can fill in, and chart a labour-intensive trade trajectory. 

But we must not daydream. 

India is battling, and straddled between the dragon (China) and the agile others (Vietnam, Bangladesh) and armed with a knife when a bazooka is needed.

We need a new paradigm. Sacrifices may need to be made, decisive policy actions that address a holistic and sustainable approach needed, to secure the future. 

Need support, deserve more

Our goal should go beyond establishing India as a global hub for manufacturing, design and innovation. We have tried and often put the rail back on track. The leadership needs to lay new tracks. 

While the PM begins to  ‘manufacture from the start’ the larger goal should be to keep the momentum, fuel growth, capitalise on the demographic dividend and propel India in the league of developed nations.

But it will not be easy. It never is. 

Sadly, leadership alone will not do it. It will require courage, skill, and wisdom and overwhelming support from every corner. 

It can be achieved if the leadership wills it.