The global economy recorded its lowest growth of the decade in 2019, falling to 2.3 per cent as a result of the protracted trade disputes and a slowdown in domestic investment.
In contrast, India became the fastest-growing trillion-dollar economy in the world and the fifth-largest overall, overtaking the United Kingdom and France in 2019. Despite mounting criticism at home over its inability to generate jobs - India's unemployment rate of 7.6 per cent was the highest since 1972-73 - things weren't that bad for the Narendra Modi government as the country ranked third when GDP was compared in terms of purchasing power parity at $11.32 trillion. Growth-wise, the nation has come a long way since 1980s, when the economy ranked 13th globally.
The unprecedented Covid-19 pandemic came as a double whammy for the global economy, which is now forecast to contract by 4.9 per cent in 2020. The Indian economy, meanwhile, is projected to contract by 4.5 per cent in 2020, bouncing back in 2021 with a robust 6 per cent growth rate, according to an International Monetary Fund review.
The once agrarian nation has recently witnessed strong growth in the manufacturing and services sector, which is the fastest-growing sector in the world, contributing to more than 60 per cent to its economy and accounting for 28 per cent of employment. With the contribution of the agricultural sector declining to around 17 per cent, the Modi government has trained its focus on the crucial manufacturing sector with the much-hyped initiative called Make in India.
An increased focus on self-reliance is set to boost the manufacturing sector, and as a first step India will stop importing more than 100 defence items worth $47 billion to boost local manufacturing. Faced with millions of job losses following a nationwide pandemic lockdown and a severe erosion of public revenue, India sees an opportunity in a scramble by multinational companies to relocate their manufacturing bases from China over geopolitical tensions.
India has reached out to more than 1,000 companies in the US, including Apple and Abbott Laboratories, offering incentives to manufacturers seeking to move.
Apple has said it is moving 20 per cent of its production from China to India with plans to scale up its Indian manufacturing by around $40 billion over the next five years. According to media reports, Foxconn plans to invest up to $1 billion to expand a factory in Sriperumbudur, near Chennai, where the Taiwanese contract manufacturer assembles Apple iPhones.
Now as opportunity knocks on the door, India needs to revisit its policies on infrastructure, logistics, labour, environment, and safety standards. India is reportedly readying a pool of land twice the size of Luxembourg to offer companies that want to move manufacturing out of China, but a manufacturing exodus from China and severing India's dependency on China are easier said than done.
Manufacturing has long been the Indian economy's Achilles heel. The country could have been a natural fit for labour-intensive garment manufacturing, yet it is countries like Bangladesh, Cambodia, and Vietnam that have gained the most since multinational companies started looking for alternatives to China in the last few decades.
And now Indian manufacturing is dependent on supplies from China, including a wide variety of machineries.
Amitendu Palit, economist and senior research Fellow, Institute of South Asian Studies, National University of Singapore, says India needs to prioritise areas where it can easily move back away from the dependency on China.
Bal Krishen, chairman, Century Financial, says while PM Modi's vision of 'Atmanirbhar Bharat' (self-sufficient India) has seen a huge debate across the entire India society, for India to become completely self-reliant, an extremely thoughtful and well-planned strategy is required. "Cost of outright ban on all Chinese imports without any proper substitutes will far outweigh the economic benefits," he says.
"India's economic dependence on China is extremely strong with China accounting for roughly 15+ per cent of imports. The India-China trade is so much integrated that even a single disruption in Chinese supply chain can affect entire Indian manufacturing sector. Case in Point - Indian pharma and electronics sectors. On the investment side too, there has been a 10x growth of Chinese investments in Indian start-ups over the past four years. A majority of unicorns in India are being currently backed by Chinese corporate and investment/hedge funds. In fact, major Chinese firms Alibaba and its affiliate Ant Financial along with others have invested over $2.6 billion in major Indian unicorns like Paytm, Snapdeal, BigBasket, and Zomato. Similarly, Tencent, alongside others, has invested more than $2.4 billion in major startups like Ola, Swiggy, Byju's," says Krishen.
For the Indian domestic players, checkmating China can turn out to be a blessing in disguise if proper government policies are implemented. "The entire idea of India becoming self-reliant will only turn out to be successful if all stakeholders of economy including government and private players chalk a way out for meaningful implementation of sound policies," argues Krishen.
M R Raghu, head of research at Kuwait Financial Centre (Markaz), says Indian economy is in a painful phase which is expected to get only worse. "China certainly will have fewer friends post-covid and global reliance on China as a supply chain hub will certainly come into serious question. However, Chinese loss should not be equated to India's gain. Ease of Doing business in India ranking should get better before we can aspire to attract serious capital. Mere optics will not do. We have some serious competition to contend with," says Raghu.
Strained infrastructure, high taxes and tariffs, ambiguous intellectual property protection, and lack of world-standard skill sets are some of the areas India has to do its homework before inviting global giants. An increased focus on economic nationalism while simultaneously sending feelers to multinationals to set up factories in India will only send conflicting signals to investors. India has to decide what it wants: self-reliance requiring enormous domestic resources which India doesn't have; or a manufacturing hub crown which requires revolutionary changes in policies and mindsets.
