Can US replace China for India’s economic needs?

Prime Minister Narendra Modi’s call for Aatmanirbhar Bharat is the ultimate choice provided Indians are prepared for hardships which the commitment requires.

Prime Minister Narendra Modi’s clarion call for Aatmanirbhar Bharat has encouraged Indians to embark upon the challenging journey of self-reliance. As the country gears up for the long haul, there are certain choices to be made for achieving the desired goals.

 India had been doing robust business with China prior to the Ladakh misadventure. Souring of ties had a fallout and India banned more than 59 Chinese apps; now the government is considering snapping more business ties. A couple of days ago, the government took a strategic decision of banning Chinese companies from bidding for work contracts in bordering areas.

 All these decisions are going to hit hard Chinese business interests. The flip side is that India will also have to chart its way forward. The good news is PM Modi’s bonding with US President Donald Trump has now matured into a strong friendship. From a defence perspective India tends to gain from this friendship. The new-found friendship puts India on a strong footing in the emerging precarious geopolitical scenario.

 Eventually India will have to look at safeguarding its business interests as well. While the country prepares to do away with the crutches of China for its business needs, the question is: Will it be a good idea to increase its dependence on the US for its business needs as well? Especially given the fact that the business profile of the two countries is quite different. It is indeed difficult for the US to replace China for India’s business needs.

 India has been heavily dependent on China for importing cheap raw materials to keep the machines moving. This understanding suited both India and China. Chinese imports at reasonable rates saved India the efforts and money for R&D and it could concentrate on manufacturing.

India, being a democratic country, cannot indulge in the kind of labour exploitation rampant in China. In a democratic country, decisions and their implementation take time, unlike in communist China.

We now have to come to terms with reality postLadakh and Covid-19 scenarios. As things appear today, India will have to look for alternatives for generating economic growth. Prime Minister Modi made a strong US pitch in a keynote address at the India Ideas Summit 2020. He had welcomed US companies to come and invest in India — a natural, trustworthy partner with huge resources.

However, will the US prove to be a trustworthy partner in business as well, has been an issue of discussion in every household. There have been some serious aberrations with the US, such as the recent decision by the Trump administration on H1B visa.

The bonhomie between PM Modi and President Trump has been much talked about. However, there is a view that with the exception of China and Pakistan, India should remain equidistant from every nation and fallback on historic and cultural relations with them. This is important keeping in mind the country’s business interests.

Circumstances though have brought both India and the US closer. PM Modi in his address said that this is a good time when the friendship between the two nations is strong. US firms must make the most of the opportunity for the mutual growth of the two countries. India offers a perfect combination of openness, opportunities and options.

“When markets are open, when opportunity is high and options are many, can optimism be far behind,” PM Modi said. His statement makes perfect sense. India has improved in the ease of doing business rating of the World Bank. India has made many efforts to make the economy more open and reform-oriented. The reforms have ensured increased competitiveness, enhanced transparency, expanded digitisation, greater innovation and more policy stability.

 The Prime Minister also made a reference to India reaching record high in foreign direct investment. FDI inflows in India in 2019-20 were $74 billion. This is an increase of 20 per cent from the previous year. During corona times India has witnessed an investment of $20 billion.

However, if India has to focus on overall growth then this phenomenon has to be evenly spread in other sectors, and not just telecom. India has a great potential in the pharmaceutical sector. It is known as the pharmacy of the developing world; people in developing countries rely on affordable generic medicines made in India. But India has been a target of the multinational pharmaceutical industry. The US and EU companies have been trying hard to stamp out generic competition from India. 

So if India has to sustain growth of its pharmaceutical industry, it has to look for new avenues. India imports almost 70 per cent Agents Pharmaceutical Ingredients from China. Since it is more economical and saves Indian companies the efforts and money in APIs R&D. Imports of APIs from the US or European countries would increase the manufacturing costs and the competitive prices advantage will go away. Should India stop import of APIs from China, then it has to think of alternative sources.

According to a FICCI report, India needs to extend export incentives, easier duty structures, build concentrated pharma parks and cities to give a push to the pharmaceutical sector. There is a need to bring transparency on regulatory approvals required and single-window clearances. Interestingly, the government has already started working towards expediting these efforts.

In the agriculture sector, the government has brought in some reforms. But there is a need for out-of-the-box ideas; for example, the government could think on the lines of working out a mechanism to convert farmers’ small land-holdings into a profitable business.

This could be done through government and private players doing agreements with farmers for taking up small land-holdings on lease and merging it into big agricultural areas for extensive farming. This could save the farmers from the woes of tiling their small piece of land and incurring losses year after year. Either government or private players could take their land on rent for a particular span of time and use it for farming on a large scale, using far better technology. Agriculture is one sector where India is self-sufficient and it could be further strengthened.

The landowning farmers could be employed on their own land. Large-scale agriculture would ensure implementation of ongoing scientific methods such as soil testing and use of better technology. The US is a leader in extensive agriculture; India could use expertise of American companies in this regard. This proposition will lead to generation of employment and also have a positive effect on the food processing industry.

A comparison between India and China in pharmaceuticals, telecom, aviation, automobiles and power sectors shows India’s dependence on Chinese imports is quite high in comparison with China, which is selfsufficient in all these sectors.

Our economy is dependent on China for raw materials and semi-finished goods in the sectors mentioned earlier. Chinese imports make the cost of Indian finished goods competitive and if we opt to replace China with the US or the EU as source of our semi-finished goods or raw material, the Indian finished products will not remain cost competitive.

Aatmanirbhar Bharat requires a complete overhaul of Indian industry from its current state. Not only we have to make finished goods but we also have to indigenously develop raw material and intermediary goods to keep our products cost competitive. Therefore India getting closer to the US is not a replacement to China.

The success of Aatmanirbhar Bharat lies in development of indigenous technology, raw material and all phases of intermediary goods. A good example is 5G technology. India was forced to go for Chinese equipment due to their cost effectiveness than any other country. Now, if India ousts Huawei as 5G technology partner, then it has to develop an indigenous partner, it has to develop indigenous equipment which keeps the cost reasonable for Indian consumers. India has seen growth in the telecom sector. While India was a late entrant into 2G, 3G and 4G technologies, it has to ensure that it doesn’t miss the bus of 5G technology.

 Fortunately, advancement made by Jio and its partnership with technology giants like Google provide a solution to the technology frontier. However, the equipment development in 5G still remains a challenge due to high cost and it will pose a challenge to technological capabilities of the Indian telecom industry in near future.

There is a need to bring about more reforms to make invitation to US and other foreign companies more attractive. India’s market quality also needs significant improvement in consumer behaviour. Indian consumers need to be empowered with more purchasing power for quality product production and consumption.

Simultaneously India will have to bring revolutionary reforms to make up for the shortfall of raw material and manufactured goods from China. Complete self-reliance for India is still a distant dream, but the country has to be realistic in identifying its strengths. India needs to focus on certain potential sectors to excel in the world market

 Aatmanirbhar Bharat is the best choice but it would require at least a decade to fructify. In the meanwhile, people should be prepared for hardships which the commitment requires.