Economy

‘Be vocal about local’ ― A calculated step to claim a position for India in the global power order

Pratim Ranjan Bose Kolkata | Updated on May 13, 2020 Published on May 13, 2020

Prime Minister Narendra Modi addresses the nation on May 12   -  PTI

Former Prime Minister PV Narasimha Rao had unleashed the India growth story and Atal Bihari Vajpayee gave the country the infrastructure push. Though Vajpayee lost the 2004 election, his ‘Shinning India’ campaign created the much-needed optics for the India growth story vis-à-vis China.

Prime Minister Narendra Modi’s latest slogan ‘Be vocal about local’ is built on both the reform agenda of Narasimha Rao and Vajpayee’s infrastructure focus to address a serious weakness in the India growth story ― low share of manufacturing in the country’s GDP vis-à-vis China.

The weakness is crucial. All the big talk of consumption- and service-led growth of the previous decade ended in creating low value-addition potential. Despite high growth numbers, India created fewer job opportunities. The situation was perfectly summed up as “jobless growth”.

Ever since Modi assumed power in 2014, he wanted to correct it by tapping new value-added opportunities (Digital India), promoting entrepreneurship (Stand-up India and Start-up India), and paving the way for domestic manufacturing (Make in India).

While the start-up ecosystem definitely improved in India, the drive to give a push to manufacturing witnessed limited success.

Make in India

This is partly due to domestic reasons ― like poor infrastructure, archaic legal ecosystem leading to low ease of doing business in majority of States, and constraints in availability of land which became highly complicated following the 2013 amendment in the Land Acquisition Act, among others.

To top it, the prevailing global trade and investment architecture foiled India’s attempts to promote manufacturing.

For example, India had undertaken the rapid solar capacity addition programme with an eye on domestic manufacturing. However, a 2016 WTO ruling went against Indian interests. Though India finally won the case in 2019, Chinese gear makers made good use of the time in grabbing majority share of the Indian market.

A bigger concern was China’s ability to offer cheap finance to buyers and/or churn out products at abnormally low cost. The global concentration of active pharmaceutical ingredient (API) manufacturing in China is a case in point.

In private, Indian policymakers, industry and experts in global consulting firms often blamed it on the opaque financing systems in China that leaves scope for disguised State subsidies.

However, there was no way they could speak of it in the open. This was either due to lack of proof or due to the muscle power of China.

Over the last few years, India tried to break open this Chinese defence by taking advantage of the trade war unleashed by the US, simmering tensions between China and its economically powerful neighbours, and growing concern among global businesses about the flipside of putting all eggs in one basket.

The effort was partly successful. For example, a high duty wall reduced the import of finished electronic goods, including mobile phones, drastically. But the gains were limited to the extent of shifting assembling jobs to India. Many or most components are still imported from China.

Imposing barriers on import of goods from China is not enough either. China preempted such moves and acquired capacities ― directly or indirectly ― in countries, which enjoy trade advantage in the WTO regime.

Corona opportunity

In his address on May 12, the Prime Minister made it clear that he is committed to remove all domestic hurdles before manufacturing and attract a share of the global value chain (which is now concentrated in China).

While liquidity issues are separately handled by the Reserve Bank of India, Modi promised “bold reforms” in removing obstacles in the areas of labour, land and law. He has also promised to create world-class infrastructure.

The reasons are apparent. There is a consensus across the world against concentration of the value chain in China. This is both due to business risks as is made evident by Covid-19 as well as due to strategic reasons.

The US may have access to technology in pharmaceuticals but 80 per cent of its API comes from China. For India, the average is 65-70 per cent. To reduce this dependence, India is setting up eight bulk drugs parks. The pandemic may make it easier to implement this plan.

Significantly, the Prime Minister didn’t make any mention of China or issues other than those which are domestic in nature. However, he stoked nationalism (a tool used by China to the maximum degree) in giving a call to promote local industry.

It would, however, be naive to assume that Modi is merely taking his chances in view of the current controversy and disruption in global value chain. It is also immature to assume that the Prime Minister’s call for self-reliance is built on the anti-globalisation narrative.

While South Korean and Japanese companies may relocate due to political risks, American and European companies may not.

Also, China has been quick to restart the economy and a simple tweak in the exchange rate of RMB may see many companies drop their relocation plans for higher profits. After all, relocation is not an easy affair, and China, having built a critical mass, offers a better ecosystem for industry.

A calculated move

Actually, Covid-19 gave the entire world a godsend opportunity to carry out changes which they have been aspiring to do. India is trying to make the best of this opportunity.

As a politician, Modi has three distinct qualities ― his ability to identify future trends, appetite to take risks, and the ability to make common Indians believe in his dreams. No one believed that 137 crore Indians would voluntarily go under house arrest for months at the call of the Prime Minister. But they did.

Over the last six years, when he struck a strategic military pact with the US and made every attempt to improve India’s influence in the region, Modi made the world believe that New Delhi was ready to shoulder the responsibility of maintaining a power balance in the region, provided they stand by India.

However, he was careful to avoid taking any confrontationist stance against China. This was most evident in India’s careful handling of the QUAD (Quadrilateral Security Dialogue). On the contrary, the Prime Minister always stressed on the importance of India-China cooperation. The underlying agenda was a claim for equal stake.

By claiming a stake in the global value chain, the Prime Minister brought out the agenda in the open. He is not interested in taking India back to the closed economy days.

He is giving a perfect excuse to the power houses of the day to enforce a change in the global architecture governed by either the UN or the WTO. The ultimate aim is to find a place for India in the global power order.

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Published on May 13, 2020
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