One needs to be patient for the shift of manufacturing from China to India to happen, says Dr V Anantha Nageswaran, Chief Economic Adviser to the Government of India. 

Answering a question after his speech at the Madras School of Economics here recently, Dr Nageswaran said such a shift in manufacturing has already begun to happen but will take time. 

“What we are hearing, somewhat anecdotally, is that due to the rapidity of regulatory changes in China in the last 2-3 years, and also due to the way the pandemic was handled in the initial stages, there is a concern among MNCs — which is not aired publicly — that they do want to relocate (their facilities out of China),” he said. 

He added, “Naturally, their first choice is to go to countries with a similar culture to China, such as Vietnam.”

“We are relatively late, compared with other countries,” Dr Nageswaran said, observing that India had seen success in certain areas of manufacture such as pharma and mobile phones, and “success will breed success”. However, “this is something we need to be patient about”.

Rising interest rates

Earlier, in his speech, Dr Nageswaran traced India’s economic growth from 1998, describing how it had met with shocks such as Pokhran-related sanctions, the dot-com burst, and the 2008 financial meltdown, and pointed out that between 2015 and 2020, several reforms were brought in — GST, IBC, infrastructure build-out, RERA, and digital infrastructure — and said that today banks and corporates are much stronger than before.

At this point, he posed a question as to whether the consistent interest rate hikes by the RBI would dampen the growth impulses in the economy and said, “My answer is, ‘no’.”

Drawing a parallel with the US’ economy in the mid-1990s, he said that the real interest rate was at a high of 3 per cent, but it did not dampen growth. The high real interest rate was just a reflection of the appetite for credit.

Similarly, in India too, the current high-interest rates only reflect an appetite for credit and would not hold back growth, Dr Nageswaran said.