India is now poking China openly; pay close attention to its message

29th April 2020

29th April 2020

India has been rather loose with its pronouncements on “fishing” in China’s troubled waters and gain by having world shift its manufacturing epicenter to our land.

After Prime Minister Narendra Modi gave a call to states to utilize the opportunity in post-Covid world, Ravi Shankar Prasad, the Electronics and IT minister, rather shockingly has asked the states to be “proactive” when the “anger against China” spills over.

Uttar Pradesh chief minister Yogi Adityanath has followed it up by laying the doors of his state open and held conference calls with Lockheed, Cisco, Adobe, FedEx and UPS (United Parcel Service) to showcase its potential. Among others are medical device makers and pharma multinationals.

The trouble is India is far from replacing China as world’s global manufacturing hub. Even if India wants to take a hearty slice out of the pie, it needs drastic action on accompanying factors which are easy to manage in a totalitarian system like China’s than in its own federal structure.

China accounted for 28 per cent of world’s global manufacturing output compared to India’s 3.0 in 2018. This has come about not because China offers just cheap labour. A lot of countries could do it. It’s because China hefts up its muscles by additional factors of (a) networked suppliers and distributors; (b) component manufacturers; (c) loose regulatory atmosphere; (d) artificially depressing its currency for its goods to become cheaper than compared to the world. And it has been doing so for 30 years.

India, in comparison, has a gap in its intent from reality. Would it be able to ignore health, safety, environment and employment regulations which China does without a care in the world? Could it deliberately undervalue its rupee by say, buying more dollars? Could it rebate and exempt its export and import taxes? Would India be able to deploy child labour, have long working hours and provide compensation insurance like China does? Does it have a similar integrated industrial system?

If India has in mind to be a hub for mobile phone giants like Apple, the chances are slim. Rare Earth elements are key in mobile-manufacturing and China controls 97% of it. From batteries to headphones, Rare Earth is lifeline to mobiles. Besides, Rare Earth is also needed for electric cars, wind turbines, solar cells etc. (Rare Earth, in layman’s terms, are a few elements which occur in the same ore deposits and exhibit similar chemical properties yet different electronic and magnetic elements).

There is no harm in India coveting world’s top manufacturing giants. But “assembling” isn’t the same thing as “manufacturing.” A separation between the two is possible, say, with delivery-giants like FedEx and UPS. But on matters of manufacturing products, just providing “assembling” is not good enough. India needs a giant churn in manufacturing in a limited time window. China would already be at work to woo the big money with more incentives.

The larger point is geopolitical realignment. For a while now, India had been sliding in the West’s camp, led by the United States. If there was a veil of diplomacy, it’s now gone to winds. India, Israel, US, West, Saudi Arabia, Japan etc now look firmly on one side. India is now open about its bad vibes against China. A large part of it is justified given how China rails against India in international forums, blocks its entry into Nuclear Suppliers Group (NSG), and sings Pakistan’s tune on Kashmir and terrorism. But the likes of BRICS, SCO etc gave it a semblance of balancing. Now that optics is gone. And what happens to our deep defence reliance on Russia which is firmly embedded into China’s camp? Does it mean we also have “lost” Iran for good?

First was India’s move to scrutinize FDIs (Foreign Direct Investment) which China is vehemently protesting against. Now is this “open” intent to woo world’s biggest manufacturers. There is nothing wrong in sensing an opportunity. But why say “at the expense of China”? Unless you want to signal the West and remove the ambiguity on your neutrality.

India has just done so. It comes with collateral damage though. China enjoys tens of billions of dollars trade advantage against India. They surely would now resort to arm-twisting India. It would be messy but one hopes India has taken into account the Dragon’s next moves. Events would now happen rapidly.

Watch the space.

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