Is China’s loss India’s gain? Maybe not

Infrastructure Void

To be sure, India does have its set of strengths. These include a mixture of high and low skilled labour that is relatively cheap compared to China (even though Chinese labour scores higher on productivity), and the potential to sell to a huge market of 1.2 billion people.

It’s not enough, though. For one, it hasn’t driven business home in the past. Over the last two years, the US-China trade war caused many factories to relocate. However, just 5 percent of these factories came to India, with nearly half of them preferring Vietnam and the remaining one-third moving to Taiwan and Thailand.

So, why didn’t these businesses make a beeline for India? There are many reasons, and chief among them is the huge advantage China occupies when it comes to investment and infrastructure. According to the World Economic Forum Global Competitiveness Report, currently, India lags China in every infrastructure category. In terms of GDP, India invests about 30 percent of its GDP, compared with about 50 percent in China. Manufacturing constitutes about 20 percent of the Indian economy; it is about 30 percent of China’s.

Outside the West, China has arguably the best physical infrastructure consistently built over the last four decades. These include the world’s largest expressway and railway networks, and seven out of the world’s top 10 cargo-ports. India’s looks more like the poor country that it still is.

China has also planned its hubs in such a way that businesses and their suppliers are close to each other, something that helps save time and transport costs. India, on the other hand, is still struggling to build world-class infrastructure that could make it as competitive.

India’s biggest infrastructure project — $100 billion Delhi-Mumbai Industrial Corridor (DMIC), which was intended to be developed as a ‘global manufacturing and trading hub’ — still faces legal tussles and pending approvals. After the idea was first raised in 2007, it took about four years for the Cabinet to approve it. In many places, the project still awaits clearances, casting a shadow over its development.

That’s just one example. India may be jumping positions up on the World Bank’s ‘ease of doing business’ Index, but setting up a business is still not easy in the country, with bureaucratic delays and lack of investor trust dampening spirits.

Government inefficiency continues to be a major hindrance with delays in land acquisition, stalling hundreds of projects across the country. For India to deliver on its promise, reform on land laws is vital.

India's volatile relationship with foreign direct investment (FDI) and uneven regulation is also something that continues to confuse global companies and is an area where the government needs to come up with better policies.

In fact, for all the global talk of slamming trade protectionism, at home, India seems to be leaning towards a policy of trade protectionism.

Global Outside, Protectionist At Home

Despite the Make in India programme, India seems opposed to seizing opportunities of global trade. Deviating from the path of trade liberalisation that India embarked on since 1991, the government has continued to raise tariffs in the last four budgets, departing from the calibrated approach of cutting tariff rates — and in direct contrast to the position it espouses in International forums.

It’s refusal to not engage with other countries in the neighbourhood also smacks of this strategy. After years of negotiation, last year the government abruptly decided to opt-out of The Regional Comprehensive Economic Partnership (RCEP), a free trade agreement with 12 other Asian countries. India’s unwillingness to sign free trade agreements not only means that it stays largely disconnected from the network of global supply chains, but also that it’s exporters are unable to benefit from tariff-free access.

Prime Minister Narendra Modi’s new rallying cry ‘Vocal about local’ epitomises this trade protectionism, The irony of staying protectionist at home while demanding business from the world, is not lost on anyone.

Meanwhile, not the one to let the business go, and in a bid to further open up its market and boost foreign investment, China has introduced a new unified law that combines three sets of laws to make it even easier for foreign investors.

Having once overtaken China as the world’s fastest-growing major economy, with consistent growth of 8 percent, India has seen its GDP growth fall to its lowest rate in the last 11 years. To challenge China, India first needs to sort its affairs at home.

This means not giving in to the temptation of protectionism, choosing instead to work on structural reforms that make it more competitive. It means strengthening infrastructure and robust supply chains to attract more business. It may even mean learning a few lessons from the Chinese growth story. India has the potential for change. The challenge remains to find better ways to catalyse it.

Shikha Sharma is a New-Delhi-based independent journalist and photographer. Twitter: @ShikhaSharma304. Views are personal.