India should not miss golden chance to change growth orbit
We need to raise a new dollar flow to keep on consuming oil, gold and electronics.
The massive trade surplus run by China for decades is reflected in their $3-trillion-plus forex reserves which are more than India’s GDP. US has started levying tariffs on Chinese imports which will make them expensive and allow other countries including India to provide an alternative. One can legitimately ask about the window of opportunity as President Donald Trump is asking US cos to bring factories and jobs back in the US. My assumption is that US cos will be rational in evaluating between America’s 32 crore consumers versus Asia’s 400 crore. US cos like Harley Davidson and Ford are already confirming this.
CONSIDER THE HEADLINES IN THE PAST FEW WEEKS:
• Walmart advises its beauty and cosmetics suppliers to move sourcing from China
• China trade war prompts a rethink on the supply chain for handbag makers like Steve Madden
• The Trump administration may soon focus on moving US information and communication technology supply chains out of China There is a disruption happening in the supply chain especially originating from China. Apple originates 73 per cent of its shipments from China. US imports about $200 billion worth of ICT products from China. This whole chain is looking for an alternative place to source from. Countries like Cambodia, Bangladesh and Vietnam are being talked about as alternatives, but India isn’t being reckoned. Japan, Korea, Taiwan, China and many other countries have grown by manufacturing goods for the world for past many decades, while we missed the opportunity.
We need to capture the export opportunity this time for changing the growth orbit of India. We need to capture the export opportunity to balance our current account. Gold was our second highest import few years back. Now, electronic imports have outpaced gold and are on its way to become bigger import than oil. We need to raise a new dollar flow to keep on consuming oil, gold and electronics. We have a shining example in automobiles sector where we are exporting Baleno to Japan, Pulsar to Columbia and XUV 500 to South Africa.
These supply chains are likely to move to those countries where there is ease of doing business, rule of law especially for protection of intellectual property rights and appropriate infrastructure. India has the unique lure of large domestic market.
FOLLOWING STEPS ARE NEEDED TO CAPTURE THIS GOLDEN OPPORTUNITY:
• As a nation we have to set our goal to become the manufacturer to the world in items where we have our strength. Leadership and decision makers along with entrepreneurs have to come together to lay a clearly defined road map with short-term, medium-term and long-term goals. We need a road map like the Green Revolution which made India self-sufficient in food grains and Operation Flood which made India the largest producer of milk in the world.
• We have welcomed Amazon, Facebook, WhatsApp, Google, Snap Chat, Über etc, whereas China has discouraged their entry or thrown them out. We need to leverage openness of Indian economy to be part of supply chains. These companies can be the ambassadors of India for relocation of supply chain units in India.
• Mandate an empowered team to focus on supply chain replacement areas — electronics, handbags, leather items, cosmetics, soft toys, and garments where there is pressure to move (even a small percentage) out of China’s predominance. This team should be empowered to do whatever it takes to bring these industries to India.
• Use large domestic demand as a push factor to get some manufacturers to set up base in India, by offering concessional or preferential access. Show them the example of how Suzuki has chosen India over China.
• Draft rules to encourage setting up of base in India. Facebook has proposed a billion dollar investment in Singapore to set up their first data centre in Asia. Indians are the largest user of Facebook in Asia. We need to draft rules such that Facebook is encouraged to set up a data centre in India.
• Main issues for any manufacturer will be land acquisition, IP protection, labour laws, infrastructure and tax and other dispute resolution mechanisms. It will be difficult to change the whole of India at one go. Targeted SEZs could be the way where there is almost one-stop clearance for all this issues. Set up timebound fast-track mechanism to settle any concern with appropriate monitoring. There should be one-stop help right from land acquisition to getting customs clearance and tax resolution driven by the empowered team in a time-bound manner.
• We need to reform labour laws, which has hampered growth. I heard of a garment maker who 10 years ago employed 10,000 workers in India. Today, he employs 20,000 workers but in Vietnam and Cambodia and none in India. Labour laws have failed to keep pace with time and technology. Hiring temporary workers during peak season, employing women in night shift, retrenchment of employees in a time-bound manner etc are required if we have to become the manufacturer to the world.
• Negotiate trade agreements better by leveraging our trade deficit. We need to target trade deficit with China by seeking reciprocal imports. We should grab opportunities like soybean exports to China as they have levied tariff on import from the US. India is likely to lose some of the trade concessions under WTO as it surpasses a certain level of per capita GDP. We must retain those concessions by highlighting the wide divergence between rich states like Delhi and Goa and poor states like Bihar and Uttar Pradesh.
We need to capture the opportunity of being part of supply chain as the future is full of disruption due to the “BLAIQ-NET” being created by four converging technology trends: ‘block chain supremacy’, ‘AI supremacy’, ‘quantum supremacy’, and ‘solar supremacy’. Together, the four supremacy technologies are driving down ownership, increasing virtualisation and decentralisation, and reducing production costs.
In a growing number of industries, the marginal cost of production is approaching zero. Ultimately, the “BLAIQ-NET” will drive a real-time economy, where billions of automated nano transactions are executed faster than the blink of an eye.
Accountability will come from the block chain. Automation will be performed by artificial intelligence, and optimisation will be achieved via quantum computing.
We need to be there at the cutting edge of technology by being part of the global supply chain.
With GST, insolvency law, cleaning up of NPAs, infrastructure investments and digitisation of the economy, we have laid the foundation for a sustainable future growth.
We need to capture this opportunity as Bangladesh whose per capita GDP was 41 per cent lower than India in 2011 is likely to surpass our per capita GDP in 2020. There will be no fun competing against Nepal and Afghanistan.
(The author is MD, Kotak Mahindra Asset Management)