Is replacing China a good decision for India

India is a large market accounting for 3% of China’s export and adding up to $75 billion in 2019. But India’s $17 billion of exports to China accounts for a much higher of 5.3% of our total exports. Any trade war would hurt India severely


Replacing Chinese goods is very easy to say but a tough job to do. China over the last 30 years has built up strong manufacturing units mostly worldwide which India has not. After the nineties, India has become one of the largest markets for computers, telephones, bulk drugs, organic chemicals, solar energy, and electric vehicles, but it had no core manufacturing unit and has been a peripheral assembler where over 50% of the critical components have to be imported into the country for production. Instead of changing the IAS dominated bureaucracy, which makes it difficult to do business in India, the politicians over the past 70 years prefer framing new slogans to urge self- dependence.

Instead of having a huge market, global manufacturers have always avoided and rejected India as a production centre and preferred other locations even if they move out of China. According to the Nomura report, 56 companies have been relocated from China on April 2018 to August 2019, only 3 came to India. 26 firms relocated to Vietnam, 11 to Taiwan, and 8 to Thailand. All these nations have very little domestic markets in comparison to India, but they have business-friendly policies and technocrats that bring transformation, much like China. India developed no technology-specific actionable plans; it looks at the technical strength and weakness sector by sector after discussing with the stakeholders the challenges to Make In India

This week India has dealt with Electric Vehicles from two to three-wheelers to the electric car and bus. A decade back The Economic Times reported that when China had more than 2000 small scale producers manufacturing and 30 million electric two-wheelers annually, at that time India produced 200,000 electric bikes annually and SIAM, the two big wheeler producers were not interested in EV. China was successful because it had an actionable technology plan and had invested RMB 800 million in the 863 fuel cell project, which was conceived by Chinese Engineers and Scientists under Deng Xiaoping. They created several common services facilities that allowed small entrepreneurs to access technology and also provided finance.

China invested not only in the mining and processing of rare- earth but also became a leading producer of electric controllers, DC motors, miniature circuit breakers, axle assemblies, brushless motors, lithium-ion batteries along with solar panels, charging stations and storage systems, which India started a decade later. China took the lead in storage technology at the turn of a century. China Investment Corporation made according to investments in mining and processing of rare- earth after the nineties with facilities in China and South America, which resulted in giving a 70% control over the market. Thus China producing lithium-ion polymer batteries and magnets of iPhone and iPad and many other solar batteries, high tech cameras, etc., India never had to worry about the raw material supplies as China was the major global supplier.

Can India be the world’s factory?

China’s deteriorated global position has come as a blessing to India, as it can now attract more investment. The northern state of Uttar Pradesh, which has a population similar to Brazil, is already forming an economic task force to attract firms keen to ditch China. India is also making a land twice the size of Luxembourg ready to offer companies that want to move out their manufacturing units out of China and has reached 1000 American multinationals, as the report of Bloomberg said. The US-India Business Council (USIBC), a powerful unit that works to improve investment flows between India and Us, said that India has significantly “stepped up its pitch.”

 “We are seeing India prioritizing efforts to attract supply chains both at Central and State Government level,” says Nisha Biswal, the President of USIBC and the former assistant secretary of the state for South and Central Asian Affairs in the US Department of the State, as reported by the BBC. Some companies have some manufacturing units in India earlier and they are probably reducing production in China units and scaling up production in India. Many of the companies are facing severe cash and capital constraints due to the pandemic and will, therefore, be very cautious while making any particular move or before taking any decision.

According to Rahul Jacob who is a long time China – watcher and a former Financial Times bureau chief in Hong Kong, said that Indian government putting up land banks together is a step in the right direction but it won’t attract multinational companies, just because of the availability of the land. “Production lines and supply chains are far stickier than most people seem to understand, and it will be very difficult to pull them apart overnight,” he added. The strict deadlines that large multinational companies operate on are integrated infrastructure like large ports and highways, the best quality labour and sophisticated logistics are offered by China. India does not have well-integrated global supply chains for which multinational companies may face loss.

If not India, then Who?

Keeping in mind everything Vietnam, Bangladesh, South Korea, and Taiwan seem to be the best fit for the backlash of China. The latter two at the highest end of the list and the first two at the bottom end. Since June 2018, a month before the trade war began, US goods imports from Vietnam have soared by more than 50%, and those by Taiwan 30 %, according to the estimate made by South China Morning Post newspaper. India is likely to fail in creating conditions that would allow multinational companies not only to the local market but would use the country globally as a production base to export the world.

Large Indian companies like Dr.Reddy’s Laboratories, Mahindra & Mahindra, and Sundram Fasteners have manufacturing units in China to cater to the markets in India as well as globally. India is a large market accounting for 3% of China’s export and adding up to $75 billion in 2019. But India’s $17 billion of exports to China accounts for a much higher of 5.3% of our total exports. Any trade war would hurt India severely.

Instead of boycotting Chinese goods, we should negotiate with Bejing to open China’s market further to Indian services as well as more finished goods and that would help in growing our export

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Is replacing China a good decision for India
India is a large market accounting for 3% of China’s export and adding up to $75 billion in 2019. But India’s $17 billion of exports to China accounts for a much higher of 5.3% of our total exports. Any trade war would hurt India severely
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