By Jayant Dasgupta & Harsha Vardhana Singh
In the major trade standoff between China and the US, US President Donald Trump is steadfast in his approach of raising tariffs and using other policies for pressurising China. On his part, China’s President Xi Jinping has indicated that China will not give in to pressure from the US. “We are now embarking on a new Long March, and we must start all over again,” Xi stated recently. Even if solutions emerge, the problem will keep festering. Thus major international firms that invest in China are examining options to spread their risks and shift some of their existing and new investments to other countries.
Several persons have written about the possibility of India benefiting through increasing exports to the US and a shift of foreign direct investment (FDI) to India. However, to substantively benefit from this situation, India requires a strategic approach to convert this opportunity into a major gain. India needs to focus on becoming a new powerhouse as a global hub for exports, with a major positive impact on competitiveness and job creation. China’s merchandise exports are almost the same as India’s GDP. Even a 10% shift from Chinese exports to Indian exports would imply over 75% increase in Indian exports.
India needs to develop a strategy and vision for itself and the world to make this a reality. Its recent tepid export performance suggests that investment from large global companies is the transformative path for India, provided certain key points are kept in mind. Moving Up The Value Chain First, India is only one among the alternative countries being considered by major international companies as an investment destination. Indonesia, Malaysia, Mexico, Thailand and Vietnam all have relatively easier access to large markets. Second, India’s domestic market is large, but the focus of most large firms with major international 7 Comments Save brands and global presence is on exports and maintaining their global value chains (GVCs).
China’s 2018 exports to the US at $560 billion were nearly double of India’s total exports. According to United Nations Conference on Trade and Development (Unctad), multinational companies account for 80% of GVCs. Third, India’s aspirations to double its exports and create jobs depend on its success to link up effectively with GVCs. As the seventh largest global economy and the 20th largest goods exporter, India is not yet a significant presence in GVCs. Fourth, to establish domestic capacity for export hubs and GVCs, strong presence of ‘lead firms’ that manage the GVCs becomes essential. These ‘lead firms’ are usually those with major global brands that can place their exports in most markets of the world. Fifth, for competing with other nations to attract major investments away from China, India needs to emphasise and improve implementation of support policies, with a new flagship programme, ‘India: Making for the World’.
Major global companies make investment decisions significantly based on ease of operational conditions and stable policy regimes. All alternative countries under consideration focus on creating and effectively implementing investment-friendly regimes - that is, taking a step beyond policy announcement. It is noteworthy that even China, in these difficult times, is increasing its incentives and project support to retain and attract additional investment. Even with a trade war, US investment in China during January 2019 reportedly doubled, with foreign capital in China’s hi-tech industry increasing by 41%. Create Export Hubs Against this background, India needs to take its vision of ease of doing business and Make in India to the next level, devising its strategy for ‘India: Making for the World’. Very soon, an announcement should be made to commence with an initial 100 days plan.
The 100-day period would quickly signal to global firms making investment decisions and provide a broader platform for meeting major ‘lead firms’ when attending major meetings such as G20, UN, World Bank/IMF meetings during Q3 2019. To give specific focus, certain selected sectors significant for employment, technology and exports should be identified for launching the programme. These ‘champion’ sectors could be textiles and apparel, automotive products and electronics (with emphasis on mobiles), to be supplemented with a few other sectors later. These three sectors in India are likely to contribute over $1 trillion by 2025. India should identify about five key companies - lead firms - in each sector and open immediate negotiations with them to facilitate either shifting or adding new capacity in the country to boost exports.
These policies which would pave the way for export hubs in India, need to be administered by relevant government agencies, and, thus, should to be framed and managed in a coordinated and facilitative manner. A new mechanism, approach and political commitment at the highest levels would be required. A senior official or minister reporting to/in the PMO should coordinate, monitor and manage effective implementation of the supporting policies and timelines. GVCs work only with timely and consistent high-quality response from different producers linked to the value chain. The coordinated approach must focus on addressing in a timely manner the actual operational problems identified through feedback from exporters. Dasgupta & Singh are former Indian ambassador and former deputy director general, World Trade Organization, respectively.
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