Let’s Learn From Success; Not Failure

Recently on the November 15th, fifteen Asia-Pacific Nations which account for nearly a third of world's population and about 29% global GDP signed a mega free trade deal that is expected to progressively lower tariffs across many areas in the coming years. The Regional Comprehensive Economic Partnership (RCEP), first proposed in 2012 includes 10 ASEAN economies along with China, Japan, South Korea, New Zealand and Australia. Its purpose is to lower tariffs, expand trade in services and promote investment which can help emerging economies catch up with the rest of the world. 

RCEP helps reduce costs and time for companies by allowing them to export their products anywhere within the group, bypassing the separate requirements of each of the group countries. It could be a concern that it affects the IPR of those products. That it will not cover environmental protections and labour rights is likely to find easy acceptance. Lack of clarity on digital trade and resulting e-commerce will need to be addressed.

India opted out of the agreement on a few local and some serious trade concerns while the US too is not a part of the deal, though the reasons for both doing so are different. That the pact is backed by China which has wider geopolitical ambition in the region is a concern. Is India worried about Beijing extending its influence across the region and dominating the Asian trade? The question has serious implications, when one considers the GDP per capita differences, an indicator of how well a country has been doing. Whereas Singapore with 64582 USD is at the top, India with 2010 USD, Cambodia with 1510 USD and Myanmar with 1325 USD are at the bottom. Australia with 57373 USD, New Zealand with 41945, Brunei with 31628 USD, Korea with 31362 and China with 9770 USD are all better placed economies. The economies of each of these countries is greatly influenced by the trade deficits they have vis a vis the rest. The nuts and bolts that comprise GDP of each of the country is much different too. It is difficult to comprehend how the differences will be normalised so that no country feels hijacked by the other in a quest to provide better for its own. Like the European Union fell apart primarily due to huge GDP per Capita differences among its partners, will the RCEP too meet the same fate? That may be too early to predict.  

What must India do now that it has decided not to join the group? In the context of completely globalised economies, will it not hurt us for not being a part? Will local jobs and the informal economy be affected in those countries of the group that have smaller economies? Will China GDP rise at the expense of the poorer economies? After all, like the conservation of mass and energy, where they can neither be created nor destroyed, there is conservation of wealth too, for it too can neither be created nor destroyed. It can only change hands like the matter or energy that can only change form. 

The dynamics of economy has been rendered beyond palliation by Covid. The 6th March ‘Bloomberg Economics’ reports that the economic fallout could include recession in the U.S., euro-area and Japan, the slowest growth on record in China, and a total of $2.7 trillion in lost output, equivalent to the entire GDP of the U.K. What if South Korea, Italy, Japan, France and Germany all the major economies other than China that have seen the most virus cases take a hit on their economy as well? The report further puts the global growth for 2020 down by 3.1% and expects India's GDP to contract 10.3% in 2020-21. 

Manufacturing must be revived if we were to see the country emerge as an important economy. In fiscal year 2020, manufacturing generated 17.4 percent of India's GDP compared to 33.9% in China. Let us explore the garment industry for an insight. Hardly any Indian factory employs more than 500 people. As against this, the Chinese companies have a workforce of at least 30,000. Manufacturing units in Bangladesh also have more than 10,000 workers. We rarely go beyond 1,000 workers splitting our workforce into many units, instead of employing many at one unit. Our manufacturers cannot retrench or hire and fire losing the economies of scale required to compete globally. 

There are concerns, challenges and opportunities. We are the second lowest cost manufacturing destination globally even lower than China. But are we really leveraging that advantage? Time and cost escalation due to long gestation periods for capital projects, complex procedures and compliances derail them many a time. Poor logistics and infrastructure reduce overall competitiveness. The opportunity lies in the fact that the government is actively promoting make in India and Start up India paradigms. Defence sector is a case in point.  However, networking with the national laboratories and universities, facilitating investment with concrete plans and timelines must also be enabled. The public sector needs strengthening. Our DPSUs and OFs face challenges of productivity, resources and capacity utilization and a rise in competition from the private sector. Corporatizing Ordnance Factories is also imperative.

Creating wage jobs in manufacturing and service sectors has great potential in the medium term, but technology enabled agriculture can give dividends in the short-term. There are several highways built but hardly any, with support infrastructure that can generate additional millions of jobs. Creating new cities to ease pressure on the existing ones, will boost infrastructural initiatives leading to new job markets. Even the national skills mission could be integrated.  

Our research expenditure must be enhanced. That the NEP envisages a 6% GDP in education is welcome but what part of it will go to research is anybody’s guess. China spent USD 279 billion on research in 2017. India spent USD 15 billion. Whereas China spends 2.1% of its GDP on Research, India spends 0.6% of our GDP a figure that has been static for the last two decades. Israel spends 4.3% and USA 2.8% of their GDP respectively on research. Only 26 Indian companies as compared to 301 of China are amongst the top 2500 R&D companies in the world. It is imperative that our policies change these numbers.

The Nature Index Rising Stars, reports, 51 of the top 100 Research Universities are from China. None from India. Whereas the total R&D spend is by GOI, our States spend nothing. The private sector spend is negligible too. India scores 12.6 against China’s 39.2 on research impact index. We publish less and impact even lesser.

‘Atmanirbharta’ is a great slogan but must be viewed from a consumption perspective too, for an increase of it raises GDP by the same amount, other things being equal. When internal production rises, internal consumption or increase in exports must also rise or real GDP may further fall. This is where, joining RCEP would have made sense. In the current globalized context, can we spar with products and services without competing on quality and pricing?