China's Loss is India's Gain

Yuvraj Bhardwaj, CEO, Petonic Infotech

Everchanging economic cycles are a known phenomenon. Economies go through these cycles periodically. The long-term growth prospects of any economy are defined by the way it manoeuvres the usual ups and downs while managing the delicate intricacies of a complexly woven economic ecosystem.

China has been right in the lead, challenging the supremacy of the western world in leading the global economy.

Just as many believed that China would soon overtake the western world and become an economy even larger than the US, the black swan of Covid hit the world in 2019. It brought to a complete halt the world as a whole and, without exception, impacted every single economy, including that of China. But the most important point was the origination of this disruption which happened in China. An economy which was already reeling under a severe strain since 2007 after having a dream run and being the fastest growing economy of the world has witnessed a painful deceleration in growth.

But more importantly, this opens up a sea of opportunities for those who can fill in the supply gaps created by a Chinese slowdown.

Advantage India

Ripples in the Chinese economy have set the ball rolling in favour of India. Both the US as well as India are keen to move manufacturing to India from China. However, that isn't really going to be a cakewalk. While certain sectors like IT & ITES have been shifting their base out of China to India, manufacturing will take some time.

Even in the IT & ITES sector, the US runs certain risks in terms of becoming over-dependent on India. Disagreements over issues such as intellectual property, data governance, tariffs, taxation, local content requirements, or individual privacy are some factors that can act as major hurdles for the partnership to grow beyond China. India's strength in R&D and modern tech developments such as machine learning, analytics, product design and testing, and other areas, especially in IT and life sciences, do give it an upper hand.

On the manufacturing front, India's huge workforce, just like China, is its biggest advantage. The favourable demography that India has can yield rich dividends if macro factors are put in the right place and perspective.

What India needs to do

Among other things that India needs to create an enabling environment for businesses to set shop here. This calls for a host of reforms both economic as well as on the socio-cultural and geopolitical fronts as well.

A large part of differences between India and China are to do with productivity growth. Both the countries have come a long way in the past 50 odd years. While China started off way behind India, almost one-third of India's productivity levels, it has taken over India in a big way to lead the world as its manufacturing hub today. According to published facts China's labor productivity level is 67% higher than India's.India needs to act vigorously on this front.

MNCs across sectors have been toying with the idea of shifting base from China, but the opportunity lies not just in shifting the manufacturing base out of China but to also act as import substitutes for various other sectors like chemicals.

Baby steps already taken, India needs to enhance its efforts further. According to a Bloomberg report India is readying a pool of land twice the size of Luxembourg to offer companies that want to move manufacturing out of China, and has reached out to 1,000 American multinationals.

If China's weakened position has to be ‘blessing in disguise' India needs to put its house in more order. Our other neighbours including Bangladesh are soon catching up and may cause a lot of discomfort if we do not capitalise on the opportunity now.