• July 13, 2020

The trade war with China has a clear winner. It’s not India

Perceptions do matter and who better than China to lend credence to that claim. Be it the coronavirus pandemic that disrupted the functioning of economies the world over or the India-China standoff that was the bloodiest in several decades, the rising anti-China sentiment has been glaring enough. Such ‘perceptions’ have also implied that companies are now looking for an alternative hub to move out of China and set up their manufacturing base in more lucrative locations. Does this, in any way, translate to advantage India? And will Brand India get its moment in the spotlight? The answers lie in a myriad of factors and more so possibilities that need to be considered before arriving at any knee jerk reaction. Even prior to the virus outbreak, India was expected to be a beneficiary in the US-China trade war with manufacturers wanting to make the shift from China. But India’s gains, at best, could only be described as marginal from the trade tension that escalated between the two largest economies of the world.Instead, countries like Vietnam and Cambodia emerged as nations with their face to the sun, rip-roaring their way through the crisis that crippled the functioning of even global behemoths. Vietnam, especially, has been able to position itself as an ideal choice with aspects such as low labour and input costs, faster decision making, conducive trade policies and improved infrastructure playing up well to its credit. Why can’t India take a cue and capitalise while it still can? Industry experts feel that this is the time for India to raise the bar and position itself as the manufacturing hub for the world. “The decision of having a second option to China is not open only for the next 1-2 months. It will be open atleast for the next couple of years as the demand is subdued globally. And whenever some of these manufacturing plants take a decision on adding capacity, they will evaluate the choice. This will come up over the next couple of years, so this window is available. But if we don’t act now, we will miss the bus completely,” cautions Rajeev Singh, Partner and Leader – Automotive, Deloitte India. Land, labour and limelightSingh’s views make one reflect on the subject that has always played spoilsport as far as India’s position as a global manufacturing hub is concerned — land and labour. Land acquisition challenges, a lack of progressive labour reforms and red tapism have imposed barriers far too many for firms keenly eyeing India.Rishi Agrawal, Co-Founder and CEO at Avantis RegTech, a TeamLease Company puts this in context by highlighting that there are a plethora of licenses, registrations, approvals, NOCs, Consent Orders and documents that are needed to sign for a plant or factory to set up in India. “It could take anywhere between 12-30 months for them to go live. There is a whole maze of paperwork that comes in at every step. Contrast this with New Zealand where a company can be set up in just four hours due to their high level of digitisation and also because they realise that entrepreneurs have the intention to create. That kind of savviness, we as a country have not been able to display so far,” he rationalises. 76723903Incidentally, such findings also came up in the Economic Survey 2019-20 in the chapter on ‘Targeting Ease of Doing Business in India’ which compared India with global peers. It stated that it now takes an average of 18 days to set up a business in India as opposed to New Zealand, where it just takes half a day with a single form and minimal cost. Elaborating further on the ways of global counterparts, Agrawal gives the example of the governments of Singapore and New Zealand which act like corporates and think of investors as customers. For India to up the curve, he says, the cycle to go live needs to shrink. “There is the cost of capital also that needs to be factored in, an opportunity cost. Every day of delay adds to this cost. The regulatory cholesterol of India is too complex. All this creates a lot of complexity and staying on top of this becomes very difficult,” he rues. Bold reforms then will be the need of the hour if India has to make its position enviable as the next best alternative. Mahavir Pratap Sharma, Immediate Past Chairman, CEPC says that the cost overheads to comply with such labour and land challenges is huge. “The labour laws need to be amended. There are a number of indirect taxes too, which add up to the total cost. These act as big deterrents for a company looking at India as a market,” he says. Brand IndiaDespite the obvious challenges, the unanimous consensus is that India has many strengths that can be leveraged to go beyond the roadblocks. The large domestic consumption within the country, diversity and a young labour force are all in its favour. “India actually can be in a sweeter spot if we start thinking about our country differently. India offers a very large local market as well. So selling within the country also can be done. So from an investor standpoint, Vietnam will have certain selling points, but so will India because of its unique advantages,” adds Singh of Deloitte India. 76723878He talks about other aspects that can help to elevate India’s stature as a manufacturing powerhouse. Make in India 2.0 with a focus on rural India as well as infrastructure building can work in dynamically positive ways at this point. The Make in India 2.0 version, he suggests, should reduce the number of sectors that have to be prioritised.“We had 25 earlier, now it should only be 8 or 10 which can target investors from an India destination perspective. Also, whenever there is a recession, governments globally have spent money on infrastructure building. India has done such investment in the previous recession with the Golden Quadrilateral project. Building large corridors can help as that will increase the demand for steel and cement, generate employment and will help build stronger relationships with neighbouring countries. That will make them look at India differently,” he adds. Free Trade AgreementsAnother major facilitator will be Free Trade Agreements (FTA) that can give India its winning streak as well as create investor confidence. Those from the exports fraternity feel that India has not been able to gain much on FTAs as these were not targeted towards our major markets. Reiterating its significance, Federation of Indian Export Organisations (FIEO) President Sharad Kumar Saraf while speaking at a recent video conference, said that India is competing with Vietnam in the EU market. “Such FTAs will give an edge to Vietnam over India, particularly in apparel, leather goods, footwear, tea-coffee, furniture and electronics. We should focus on FTAs with our major export destinations like the US and EU,” he stated. The Economic Survey 2019-20 too had highlighted the impact of India’s trade agreements on the overall trade balance. “India’s exports have increased by 13.4 per cent for manufactured products and 10.9 per cent for total merchandise, while imports increased by 12.7 per cent for manufactured products and 8.6 per cent for total merchandise. Thus, India has clearly gained 0.7 per cent increase in trade surplus per year for manufactured products and 2.3 per cent per year for total merchandise,” the survey had stated. It would not be incorrect, then to say that the role of FTAs cannot be underestimated in the overall scheme of things. Keeping this in mind, India should take the lead in sectors such as electronics and the labour oriented industries. If India makes its unique and diverse strengths work to its advantage at this point, foreign firms may find little reason to look anywhere else. “It is a very important window that we have in front of us in the midst of the geopolitical situation playing out and new supply chains being drawn. This is the time for us to position ourselves as an attractive player to the world,” sums up Agrawal.
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