Connecting Regions of Asia.

Modi Plan To Reduce India’s Dependence On China


When India’s Prime Minister Narendra Modi announced on Tuesday a US$265 billion stimulus package – about 10 per cent of GDP – to revive growth in the country’s battered economy, he described it as part of a larger push for Asia’s third-largest economy to be “self-reliant”.

“The crisis has taught us the importance of local manufacturing, local market and local supply chains. All our demands during the crisis were met locally,” he said.

Modi’s message comes as countries around the world attempt to reduce their dependence on China after global supply chains were disrupted when parts of the Chinese economy shut down earlier this year to contain the coronavirus spread. Two weeks ago, US Secretary of State Mike Pompeo said the country was in talks with “friends” like India to “restructure global supply chains to prevent something like this from ever happening again”.

Analysts say India’s gambit to ramp up domestic production and curb imports – especially from China – might be driven by its lack of choices amid deteriorating economic data.

The country has been under complete lockdown since March 25, and about 122 million people are out of work. Smaller firms who make up 30 per cent of the economy have pleaded for help to combat their financial distress.

After the stimulus package was announced, stocks jumped the most in almost two weeks though India’s Sensex had fallen by 600 points as of Thursday afternoon. The government had previously committed less than 1 per cent of GDP to boost the economy.

Dr Geeta Kochhar, an assistant professor in Chinese studies at New Delhi’s Jawaharlal Nehru University, said the current crisis was an opportunity for India.

“But for it to sustain India will have to back its words with action – it has to create the right environment for investment, like China did, when it started industrialising,” she said.

New Delhi is already trying to reduce imports from China, with which it has a gnawing US$87 billion trade deficit. Last month, the government announced schemes to incentivise the manufacturing of electronic products – long considered a strength of Chinese firms – and has even spoken of appointing special bureaucrats to fast-track approvals of companies wishing to move out of China.The push to go local has been trialled by Modi before. His ‘Make in India’ campaign, launched in September 2014, made some headway towards its goal of turning India into a global manufacturing hub, with the country shooting up 79 places to sit at the 63rd spot in the World Bank’s Ease of Doing Business Index last year.

However, most industrialists privately admit that it ran out of steam much too soon. Indeed, opposition leaders have alleged that the new self-reliance campaign is nothing more than the rebranding and repackaging of an old programme.

A belief in the ideal of self-reliance, however, is also a political one. Last month, Mohan Bhagwat – chief of the Hindu Nationalist Rashtriya Swayamsevak Sangh organisation that is known as the ideological fountainhead of Modi’s BJP – went on the record to state that India needs to come up with a “new model of development which makes us self-reliant”.

“As much as possible use indigenous goods and try to live without using imported items,” he said, addressing office-bearers of the RSS.

The self-reliance campaign has the added benefit of providing Modi the political leeway he needs to push through unpopular measures that industries have been seeking, such as making labour laws more flexible and making it easier for companies to acquire land. In the last two weeks, different Indian state governments led by the country’s most populous state of Uttar Pradesh have suspended labour laws in small workplaces, in a bid to lure private investment.

Yet one of the underlying assumptions of both Modi’s Make In India campaign and the new self-reliance movement – that the country will be able to lure capital away from China – has been questioned by observers like Kochhar, the Chinese studies professor whose research interests revolve around studying China’s development process.

“Capital does not work on emotions. One needs policies, infrastructure and the right conditions,” she said. “All of which China has created. So, we need to wait and watch.”

And India’s industrialists, while publicly lauding Modi’s announcement, are also known to have scoffed at it in private.

One senior industrialist in India’s telecom sector, who did not wish to be named, said that past experience shows most of these announcements have not translated to action.

“After Make in India was launched, we would see foreign industrialists feeling encouraged to come and invest. But when they came here, they would see India’s systems being so disorganised that most would abandon their plans,” he said.

Meanwhile, reducing imports, especially from China – India’s second largest trading partner – is not going to be easy, especially without more government investment to boost domestic manufacturing.

“It would mean building infrastructure that supports industries, as well as promoting innovation through funding,” said the head of a New Delhi-based trade association, on condition of anonymity. “Where is the fiscal space for all this?”

India is already running a fiscal deficit but analysts on Wednesday said they did not believe the stimulus would increase spending outflows by too much, as details of the stimulus package to date showed initiatives mostly had to do with encouraging lending and credit guarantees. A US$22 billion social security relief programme was announced earlier with those in need getting cash transfers.

Finance Minister Nirmala Sitharaman on Wednesday said the government aimed to help 4.5 million businesses through a credit guarantee scheme, so they could get collateral-free loans from banks amounting to US$40 billion.

Courtesy – SCMP

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