Putting good sense above sentiment

Slam bang in the midst of the pandemic came the news of a conflict arising out of a pending border dispute with China. While this may seem sudden, the economic war for commercial supremacy has been fought continuously since China's liberalisation in 1976 and India's economic liberalisation in 1991, with China becoming much stronger than India today.

China became a $1 trillion economy in 1996 while India touched the same level in the year 2000. Today, 20 years later, India is still at $2.5 trillion, while China overtook this figure long ago, to create a huge gap and has touched $13 trillion now. This is a gap like Usain Bolt and his nearest rival in the 100m race.

According to the Indian Department of Commerce, it is very difficult to replace Chinese products immediately. Just some statistics will show that in the smartphone market, Chinese brands are very popular in each price segment and enjoy almost 72 per cent of the total market share, Smart TVs has 45 per cent, other home appliances are at 12 per cent, while Internet apps are at 66 per cent. Chinese content is high in many products imported from other developed countries too - import of aircraft by Indian Airlines from Boeing will have a considerable Chinese content. It is impossible to imagine a world without Chinese content in India in the immediate future.

While India historically took pride in being a software power, China has started boasting of having nine of the top 20 tech giants according to venture capital firm Kleiner Perkins Caufield and Byers; overtaking India quickly in a sector where it had been traditionally strong. Companies like China mobile, Tencent, Alibaba, Baidu, Xiomi, Meituan Dianping are speedily increasing the gap in terms of revenues and future expected growth plans in India, compared to large Indian tech companies.
India has the technological skills required to create future unicorns in the technology space but lacks the venture capital ecosystem to fund initial losses that the future unicorns make in initial years. This funding has largely been provided to the Indian start-ups by venture capitalists based out of the US, Singapore, Hong Kong and China.

China realised the potential of the Indian technology sector and has provided strategic funding over the past five years to a majority of India's technology start-ups in contrast to mainly infrastructure-related FDIs in neighbouring countries like Pakistan, Sri Lanka, Myanmar and Bangladesh.

China has been quick to realise the potential of electric vehicles in India. It is using its global leadership position in this sector to penetrate the future lucrative market in India. Strategic Chinese investments in Ola and other e-commerce aggregation companies, fintech, social media have been small and gone unnoticed, but they will have huge potential for attractive valuations in future. The single largest investment by China has been the takeover of Gland Pharma for a whopping $1.1-billion and $300-million investment by MG Motors in India.

Indo-China interdependence is still not at a stage where Indians can call for a China-less economy, but Indians can certainly plan for a "Less from China economy" in the future. A call for a total ban on the import of Chinese goods may be justified emotionally since national sentiments are hurt, but Indians need preparedness of their industrial capabilities for this call to be effective and sustainable.

Since its liberalisation in the 70s, China created industry-friendly infrastructure and a supporting educational system that promoted the creation of vocationally skilled manpower. Secondly, it created an investment-friendly eco-system to attract global companies. Third, it followed a large economy-of-scale production strategy. It means that a 10 per cent profit of a 1,000 is more than a 20 per cent profit of a 100. This resulted in a lower price for the end-consumer making it difficult for competition. Fourth, by disallowing leading global tech companies in China, it groomed local talent to create unicorns that are amongst the top global players in terms of both technology and size. There has been a general feeling of uncertainty about Indian policies, high cost of land, inflexible labour laws and lower productivity that spook foreign investors. We need an equally robust economic strategy to make the jump from 'atmanirbhar' as a feel-good phrase to reality.

(The columnist is visiting faculty for international marketing and global business expansion to a number of top business institutes.)

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