R Srinivasan

We are missing the coronavirus bus

R Srinivasan | Updated on March 04, 2020

Food for thought India has a market to tap, with China having withdrawn from the scene. - PTI

India has to work to seize the opportunity thrown up by the virus-induced disruption

Addressing his party’s MPs this Tuesday, Prime Minister Narendra Modi reportedly urged them to commit themselves to ‘peace, harmony and unity’ and reminded them once again of his poll promise to the people of India – “sabka saath, sabka vikas, sabka vishwas” (With all, development for all, the trust of all) – which was a clear signal to his partymen to stop fanning communal tension with incendiary speeches and slogans and focus on the larger national goal of development.

This was an important course correction by the Prime Minister, and one which was urgently needed. While the world is grappling with the twin threats of the novel coronavirus (Covid-19) — which is threatening to assume the proportions of a global pandemic, with the global death toll crossing the 3,200-mark — and the virus-induced supply chain disruptions originating from China — which may peg global growth back by 0.1-0.5 per cent this year alone — the bandwidth in India has been occupied by Article 370, Kashmir, riots in Delhi and a widening protest against the CAA-NRC combine.

CAA debate

So, the course correction and the re-focus on growth and development were very much needed. The question is, whether this has come about a bit too late. The riots in Delhi came at the worst possible time, during the high-profile visit of US President Donald Trump. And, despite the pomp and pageantry of the ‘Namaste Trump’ show in Ahmedabad, the attendant global media was quick to focus on the rioting in Delhi.

It is a measure of how far India has lost the global PR battle that a UN body sought to implead itself in the ongoing legal fracas in the Supreme Court. The office of the Geneva-based UN High Commissioner for Human Rights has said it intends to move the Supreme Court to be made a part of the many petitions challenging the CAA. India’s Foreign Ministry has rightly said that the UN or any other international third party has no business meddling in India’s internal affairs, but the damage has been done. It’s a moot point whether global businesses take investment calls based on what the UN thinks, but it can hardly be anyone’s case that such negative publicity will be positive for investor sentiment.

Global supply chains

Meanwhile, we are missing what might be a historic opportunity to grab some of the global supply space that China has been forced to vacate because of the virus outbreak. Of course, India is also going to feel the pinch. China is India’s third-biggest customer for merchandise goods. It is also one of the principal suppliers for active pharmaceutical ingredients and pharma intermediaries, electronics and telecommunications (particularly mobile phones), capital goods, automobile accessories, electrical machinery, power plant equipment and steel products.

But India is well equipped to manufacture all these items. In some sectors like textiles, it even enjoys a distinct advantage. India’s apparel and textile sector is over $57 billion in size — and China has just vacated a $20 billion space in this market. India is also the world’s second-largest producer of cotton, with 16 per cent of global stocks. It is also a significant player in leather, has a sizeable capital goods industry of its own and is also the world’s largest producer of fruits and vegetables.

The trouble is, that India’s potential has largely remained on paper, due to a combination of bureaucratic roadblocks, lack of scale players, high tax and transaction costs, and severe logistics bottlenecks. This is why, even the US-China trade war, which preceded the Covid-19 crisis, failed to create much space for India.

Global businesses are looking to de-risk their supply chains by diversifying their sourcing markets both geographically and geo-politically. India is ideally placed to cash in this, but a leaden-footed response has meant that nimbler countries like Vietnam and the Philippines have managed to grab a bigger slice of the opportunity.

Ease of doing business

This is not to say that India has done nothing. One of the most significant reforms in recent times has been the cut in corporate tax rates, with rates as low as 15 per cent for some greenfield enterprises. But taxes are only part of the reason why foreign investors move to a particular geography. The ease of starting and operating a business are also equally significant factors.

Here, we have miles to go. Land acquisition is still largely a no-no. Environmental clearances can take years. In addition, we have complex regulations on standards and certifications, which also significantly lengthen the time gap between shovel-in-the-ground and product-in-market.

Take the chemicals sector, particularly the organic chemicals which go into the final making of bulk drugs and generics. A draft pharma policy in 2017 mooted the setting up of mega pharma chemical parks with common waste disposal and effluent treatment facilities, assured cheap power and logistics connectivity, all of which are needed if one were to compete at China’s scale. That proposal is yet to get off the ground.

In steel, the domestic players have managed to stave off the dragon’s threat thanks to countervailing duties. Such help will not be available in global markets, and they will have to find a way to get more competitive globally. China’s crude steel production, at nearly 871 million tonnes in 2019, was more than eight times India’s. Indian steel simply does not have the capacity to meet the supply gap left by China, and would need at least five years or more to even start adding capacity.

Nevertheless, there are a number of things the government can do to encourage both domestic and foreign businesses to seize the Covid-19 opportunity. This could include accelerated clearances for export-oriented projects, specific tax holidays or other incentives and focus on de-bottlenecking at least a few key logistics points to facilitate smoother and faster movement of exports.

India Inc also has to do its bit. No amount of government incentives can help if players don’t invest in technology and product development, focus on quality standards and adhere to manufacturing and supply disciplines. That may well prove a bigger ask than merely cutting some bureaucratic red tape.

Published on March 04, 2020

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