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India’s moment has arrived: Part- 2

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With the election of Donald Trump as president, he has been advocating AMERICA FIRST policy, under which imported goods, especially from China, are facing increased tariffs. It would reduce USA trade deficit with China of 450 billion $ and promote domestic manufacturing. Banning of Huwaei 5G technology, expulsion of Chinese journalists, etc. shows a emerging cold war between USA and China.

Some commentators argue that this is a short-sighted measure by USA and would be relaxed through negotiations with China, as seen in recent Phase 1 trade deal between the two countries.

However, This is not true because there is an inherent contradiction between the strategic objectives of the two countries. USA is the world’s largest economy with GDP of 21 trillion $ but growing at 2% per annum only. On the other hand, China is the second largest economy with GDP of 16 trillion $ and growing at 6% per annum. So, China’s GDP will surpass that of USA in a decade. Thus, both USA and China realise that USA global dominance presently is and would be challenged by China inevitably. China has been taking initiatives in this direction through creation of OBOR, which focuses on infrastructural creation in Asia, Africa and European countries, akin to Marshall Plan of USA.

Further, international organizations like World Bank and IMF are being challenged by AIIB bank, BRICS bank, etc. Though USA and China should collaborate together due to greater interdependence on economic issues and Trump indeed tried to do so with China, through his first foreign visit to China, but global competition and conflict for the most powerful country is inevitable, because this decides the global currency dominance (dollar or Yen), control of global institutions like UN, WTO, WHO, etc. So, the world is getting entangled in an emerging cold war, which may affect India’s interests.

After Independence, India adopted the non-alignment policy during the USA-USSR cold war period, and later allied with the Soviet Union since 1971, which was a loosing side. On the other hand, communist China allied with democratic America against communist USSR and saw rapid economic development through transfer of capital, technology and intellectual property, while India lagged behind.

However, in the emerging cold war, India has abandoned the idealist non-alignment policy and has supported the stronger power USA through QUAD, LEMOA, CISMOA, defence partnerships, etc. This will increase economic, strategic and defence cooperation between the USA and its allies with India.

Further, India has laid the groundwork for economic development as shown in the last article. Therefore, with trade barriers and sanctions by USA against China, the western companies located in China would be pushed to look for better alternatives. India fits perfectly in their considerations due to political stability, large market, cheap labour, transparent policies, etc.

Some critics may argue that India may not be the natural attraction for these companies, due to competition with Bangladesh, Vietnam, South East Asia, etc.. Yes, these countries do offer a low cost advantage, but they have a smaller market, smaller workforce and political instability, unlike India. Thus, for a long term trade and investment, India would be the natural choice for countries. 

Further, the current COVID 19 pandemic, has demonstrated to the world at large, and businesses in particular, that China is governed by secrecy, absence of rule of law, limited property rights, lack of independent judiciary and lack of democracy. On other hand, the success of India is handling the COVID crisis highlights the state capacity to deal with disasters, while upholding democracy, rule of law, freedom of speech and expression, freedom of press and independent judiciary for contract enforcement. This sharp contrast will also be noted by the businesses, especially MNCs, who are looking for alternatives.

The recent Chinese aggressiveness by tightening its control over Hong Kong also has brought greater American sanctions on businesses located in Hong Kong. Since Hong Kong is a financial hub for China, so the exodus of financial institutions would be attracted towards India, as Indian has a huge growth potential. Further, Chinese territorial incursions in Ladakh and Dhoklam, and the willpower demonstrated by India in withstanding the Chinese hegemony, has boosted its image and increased strategic cooperation with countries like USA, Japan, Australia, etc as they also see China as a common enemy. Further, #boycottChina has further eroded the Chinese exports due to popular sentiments against China in its export destinations , thus adversely affecting China based companies .

Thus, businesses coming to India and trade between the western countries and India would face less challenges than with China. Naturally, India will be greatly benefited by China’s misadventures, and therefore, India should maintain a high vocal pitch of competition with China, without entangling in any confrontation, so as to send a message to the world community that India stands in sharp contrast to what China stands for. When businesses will face a choice, they will naturally prefer India over China.

Further, as Shashi Tharoor says, India’s soft power has always enabled it to present a better story because of its democracy, unity in diversity, IITs, Bollywood, etc. Thus, India is always seen as a natural partner for all countries across the world. In contrast, China has always been seen as a bully and threat, due to its expansionism and communism policies and thus has failed to propose a better story for itself. No wonder, China has been blamed for COVID 19 pandemic, from  initial days itself and its allies have reduced to few countries like North Korea and Pakistan.

These factors uniquely places India to capture the FDIs and manufacturing and assembling industries of MNCs based in China, and contribute in the global supply chain. This will also promote greater investments, technology transfer, indigenous manufacturing, and increased trade with the world. The government has also supported it through increased tariffs on import of goods while liberalizing financial and technological flows like allowing private sector in railways, defense and space. This will curb imports, promote Make in India and thus help in the development of manufacturing sector. Thus, India is uniquely placed to reap these advantages and emerge as economic superpower.

India had missed the first three industrial revolutions, but it is well placed to harness and lead the fourth industrial revolution. It has the willpower, capacity and institutions which can propel the country to greater heights. As Shakespeare said, “There is a tide in affairs of men, when taken at right time leads to fortunes”, India must grab this rising tide of opportunity to become a Vishwa-guru and revive its past glory. This will fulfill the tryst with destiny, which the people of India had made during independence.

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