Seeking new horizons
Push for globalisation overseas and protectionism at home
Prime Minister Narendra Modi placed himself in a paradoxical situation in the World Economic Forum at Davos. While he was assertive for protection of globalisation in the summit, he is toeing protectionism at home with the hope that it will give fresh life to the Make in India initiative, which flopped. He reverted to import substitution and increased import tariff to give protection to domestic manufacturers. In the summit, he said "many countries are now becoming more and more self-centred. It seems globalisation is sinking". He quibbled, "As opposed to globalisation, the forces of protection are emerging". The government raised custom duty on various electronic goods in December last, embracing mobile handsets, microwave ovens, television sets LED lamps and cameras.
Today, India's custom duties are the highest, compared to ASEAN countries. While India's simple average MFN rate is 13 per cent, the rates are much lower in Indonesia (7-8 per cent), Malaysia (5-6 per cent), Myanmar (5-6 per cent) and Vietnam (10-11 per cent). In addition to MFN rate in India, additional duties are imposed to protect the domestic industries, taking the effective duties more than double of MFN rates.
The last World Economic Forum at Davos ended in shivers, with Trump quieting the Summit to advocate his America First policy. The Guardian said Davos, without Donald Trump, was like Hamlet without prince. Toeing Modi's Make in India move – an attempt for inward growth - Trump's move for America First acted as a tool for growth without polarising on global growth parameters. The main aim for inward development for both Modi and Trump was to create job opportunities. Given this economic philosophy of the two leaders, globalisation was feared on a feeble plank.
Modi's chant for globalisation reinforced Chinese President Xi Jinping' assertion in its favour But, why did Modi echo Xi Jinping's advocacy for globalisation, despite having political bitterness and huge trade deficit, which mounted the pressure on BOP. More than 50 per cent of India's trade deficit is due to China's dumping goods in India. Is it that business interests forced Modi to put a lid on political bitterness and trade deficit and praised Jinping's leadership for globalisation?
During the three years period of Modi regime, Make in India initiative has faced paradoxical trends of investment. While foreign investors were gung-ho to invest in India, domestic investors were reluctant to put their money, despite India ramping up in the Ease of Doing Business and sustained the highest GDP growth in the world. Given this state of affairs of investment, Modi has no other choice, but to rely on foreign investment.
In recent times, China made a volte-face in diluting its rigidity towards India. Its backtrack in the Doklam standoff and increasing investment in India in search fora bigger market after Trump's threat of tariff restriction unravelled a new look at India by China for clinching better economic engagement, while burying the hatchet of political bickering. India-China economic relation increased manifold during the Modi administration. Unlike his predecessors, Modi tried to woo Chinese investment with two main goals. First, to increase Chinese investment and second, use Chinese investment to reduce the wide trade deficit gap by curbing cheap Chinese exports, instead of using anti-dumping measures.
The attempts yielded results. Chinese companies, which were losing business in their domestic market because of yuan appreciation, were attracted by India's higher growth trajectory, which comprised large middle class and non-ageing people. Six top brand Chinese smartphone makers (Xiaomi, Oppo, OnePlus, Gionee, Vivo, Huawei) have established their manufacturing facilities in India.
India accounted for 60 to 70 of the global sales of these Chinese handset companies. Global sales account for 30 to 35 percent of the total sales of these companies. In a way, India acted as an engine for the global presence of these Chinese companies. For Xiaomi's smartphones, India accounts for 67 percent of its global sales, for Vivo 73 per cent, for Oppo, it is 48 per cent and for Gionee it is one-fourth. A Chinese company has become the fourth in the series to manufacture metro coaches in India as a part of India's drive for import substitution.
With Modi-Xi Jinping relations entering into a new horizon, Chinese investors rushed into India with mega investment proposals. During 2016, Chinese companies proposed US $2.3 billion worth of investment in India.
Responding to the Chinese initiative, Indian think tank NITI Aayog showed renewed interest in Chinese investment, despite the security concern. Underpinning the concern over a large trade deficit, Indian honchos asserted that India cannot forever remain a Chinese market without broader economic ties. Both NITI Aayog and the National Reform Commission of China entered several agreements of economic cooperation in November 2016, embracing energy, urban development, Digital India as well as greater access of Indian IT firms in China.
China Railway Corporation (CRC) is carrying out feasibility studies of high-speed trains between Chennai and New Delhi. It will be no wonder if China can grab the construction deal of the longest route of high-speed train and could pose a major challenge to Japanese hegemony in the high-speed train field. China has already proven its capability after winning the Jakarta – Bandung 150 km high-speed rail project against stiff competition from Japan.
(The views expressed are strictly personal)