Make in India in the context of the Chinese slowdown

June 23, 2016 | Cdr (Retd.) Dipak Naik

Economics and market dynamics are too complex to predict. Just as we start perfecting a new found strategy to achieve growth; the rules of the game are changed by a player outside the field. We have all praised globalization as a key to success. Now we are learning that it also makes us susceptible to the rise and fall of international industry, services and trade. The 2008 US crisis became a global issue. The Indian industry and service providers suffered. The soft ware, KPO and BPO took a severe beating followed by the bankers. However the orthodox banking followed in India kept us on the brink and saved us from the melting pot.

The current calendar year is witnessing a slowdown in the Chinese growth story. It had to happen sooner or later. The effect of the Chinese slowdown is most visibly seen in financial markets. Considering that China’s stock market is largely closed to outside investors it should not have a direct impact on global investors. But equities markets are certainly reacting to the impact of a Chinese slowdown.

The real effect will be seen a few months later and will be dependent on the volume of trade that various nations have with China. China accounts for around one-third of all exports for Australia. China is the largest trade partner for Sub-Saharan Africa. Angola, the Democratic Republic of the Congo, Equatorial Guinea, Republic of Congo, and South Africa account for three-quarters of all of Africa’s exports to China. Latin American exports to China have risen to account for a record 2% of the GDP of the region. Germany accounts for the bulk of EU exports to China. German exports to China are about 2% of the GDP. China is the second-largest trading partner of the EU after only the US. So, a slowdown in China will certainly affect Europe.

In contrast to this dependence, exports from the US to China are less than 1% of GDP. That stands in contrast to Japan where exports to China accounts for as large as large as 3% of GDP. As China’s growth slows, its imports have fallen by 8% from a year ago, as per the latest data for July and by 6% in June. The markets some how sway more on emotion than on facts. It washed out investor’s capital in Indian stock markets by a large chunk in a day last month. These sudden unpredictable bear and bull runs are common but unreal. This brings us to a point to ponder about our dependence on world markets and economies.

We as a nation will have to draw out our country / region specific strategy for capping limits of both imports and exports. While promoting exports augurs well, it has to be ensured that these exports are diversified to different countries and regions, to reduce the proverbial number of eggs in the same basket. We feel that there is a strong case for putting all the wisdom of economic thinkers together to work to predetermine the required growth rate as against reaching out to higher and higher growth rate. We feel that exports and imports to and from our country need studied cap as a percentage of GDP. More importantly this may be a good warning for us to modify our “Make in India’ campaign in to “Make in India for Use in India” Swadeshi raw material put through Swadeshi process for Swadeshi consumption. After all, one fifth of humanity lives here in our very own Bharat


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