04 MAY,2020 | MEDC
Rightly or wrongly, there has been an upsurge of global emotion against China for its handling of the Covid-19 crisis. Global efforts are on to create reliable supply chains outside China, which would reduce the world’s dependence on a rather unpredictable superpower. We need to strike while the iron is hot and push through Make in India. That begins with a thorough study of China’s economic history, to understand how that country overcame several odds to become the world’s manufacturing powerhouse. No doubt, it may not be possible for us to replicate everything that China did … and we don’t even need to. But the fact remains that China managed to woo a substantial chunk of global investment for decades on end. In contrast, foreign investment in India’s industrial sector has been largely restricted to catering to the domestic market, and usually that too when it could not be profitably undertaken through any of the Free Trade Agreements. In our hurry to project ourselves as a developed economy, we have focused excessively on the growth of the services sector at the cost of manufacturing (and agriculture). This approach needs to now change.Right from the beginning, an important aspect of international trade that China got right was to value its exchange rate correctly vis-à-vis the American dollar. That enhanced its global competitiveness, and set it on the path of economic growth. In India we have a mistaken belief that a strong currency implies a strong economy, whereas the reality (at least at our level of development) is often the reverse. Much of our industrial decline vis-à-vis the rest of the world is due to the fact that we failed to value our currency appropriately as it was often not politically expedient to do so. Discerning foreign investors were able to see through it and parked their long-term capital elsewhere.At least as far as foreign investors were concerned, the Chinese substantially enhanced the ease of doing business in their country. India needs to step up the process of economic reforms, especially since we have not be affected much (relatively speaking) by Covid-19. India should begin by targeting a few strategic industrial sectors in which it is able to make a compelling case to key individual investors. That will produce multiplier effects throughout the economy and enhance the country’s potential desirability to foreign institutional investors. In their global investment strategies, China got only a few things right, but they were the ones that mattered. That is what we need to learn from them.
*Photo Credit: Google