India's Readiness to Facilitate Companies from China - Part 3

India -  Strengths, Weakness, Challenges

For the Benefit of Readers: Below are the Titles for previous parts: 

Section 1, 2 are in Part-1 [ClickHere] and Section 3 is in Part-2 [ClickHere] of the blog.

Section-1: Buckets and Bridges in Hierarchical Academic System: Prima Facie

Section-2: Evolution in Engineering Education

Section-3: Volcaneering - Volcanic Eruption of Engineering Seats

Section-4: Focus India -  Strengths, Weakness, Challenges

Now Section-4: Focus India -  Strengths, Weakness, Challenges

 Preface:

In Preface, Let us start understanding the real scenario as a Pinch of Salt to understand the dependency of China in India:

Trade: 

• Imports from China to India in 2019-2020 worth 62.4 Billion dollars
• India’s trade deficit with China was $56.8 billion in 2019. To be more detailed in 2019, the total trade between China and India is ~93 billion. India imported from china worth 75 Bn and exported 18 Bn. [4-1]
• India’s BIGGEST Trading Partner is China with 109.7 Billion and next is the US with 88.7 billion. Not to forget India does huge Defence deals with the US unlike with China. These defense deals take a huge chunk of the total trade with the US.

Investments:

• China's FDI in India stands at over $2.34 Bn. Different sources say different numbers when adding strategic rerouted ones it may reach near to $6 Bn to 8$ Bn.
• Paytm has $3.5 Bn,  Ola $3.2 Bn, Oyo $3.2 Bn, Snapdeal: $1.8 Bn, Byjus: 1.47 Bn from China (From Businesstoday). Others like Big Basket,  Delhivery, Dream 11, Flipkart, HDFC, Hike, MakeMyTrip, Paytm Mall, PolicyBazaar, Quikr, Rivigo, Snapdeal, Swiggy, Zomato are some more.  We all know of a recent amendment by Govt.of India after China's central bank buys a 1% stake in HDFC.

Markets:

• Major Imports from China to India,  which are above $1Bn are Electrical Machinery ($19.103 Bn), Reactors,boilers ( $13.322 Bn),  organic chemicals ($7.970), plastic ($2.714), fertilizers ($1.820).
• Major exports from India to China are mentioned in dollars in millions: OrganicChemicals:2702, Slag and Ash:2356.9, Minerals, Fuel & Oils:2128, Fishing related:1336, Electric machinery: 862  (in millions of dollars).
• Chinese smartphone makers have over 75 percent share of the Indian market. 1996-1997: 156 million reached 10 Bn in  2020.  70% of mobile components are from China.
• In the last 10 years, 22,420 MW of critical power plants have been commissioned and of these 12,540 MW were built on Chinese equipment, including Adani’s Mundra and Tirora units, CLP India’s Jhajjar plant, Reliance Sasan and Vedanta’s Talwandi Sabo project. Imports from China were worth over Rs 21,000 crore in FY19 and in excess of Rs 16,000 crore in April-December FY20 [4-2]
• 60% of pharmaceutical ingredients are being imported from China.

After Preface, Let us get into the discussion of this section:

Because of Trade Wars and COVID Impact, many MNCs established in China are thinking of adapting China+1/China-1 Strategy to reduce dependency over China.

• China+1 means having additional units outside of China without coming out of China.
• China-1 represents shifting production units out of China.

During the trade war between the US and China in 2019, Nomura  [4-3]  analyzed the trade diversions. India stands at 17th position from the Nomura study and Vietnam was able to attract more organizations by standing first.

There are approaches that need to be understood. In the era of globalization, no country can run independently or can exist by banning any other country’s imports. So, countries need to co-exist and grab opportunities by presenting strengths. 

The only action that any country can do is by making the trade deficit as little as possible.

In the era where the whole world is a market, co-existing is the only way in my view. 

Take the scenario: where In 2017, Transport Minister Nitin Gadkari announced the world that he intended for India to move to 100% electric cars by 2030 [4-3.1]. To produce batteries Cobalt is required and 60% of cobalt reserves are in China. It is not so easy to achieve this without co-working with China. Once Achieved  India will save billions of dollars as currently, India is spending a huge chunk of the money on purchasing crude oil.

So, It is all about making Trade-Deficit to zero which makes India prosper. In the hurry of making trade deficit zero, India should not limit encouraging the thoughts to go for alternative vendors. India’s leadership should also think about encouraging home-grown organizations on top of going for alternatives. 

When alternatives come to the picture China has the winning edge in the race in terms of cost and delivery because of the ecosystem that the country has. On top India will lose the opportunity to avail the Benefit over this opportunity.  

In the hurry, if the country limits itself to look for alternatives it won't produce a greater benefit to the country's future in the long run. For Example, if a customer is moving from buying a mobile from Vivo to Samsung, it won't make any difference to the country’s economic perspective. Emotionally one may get satisfied, but it won't realize the country’s dream to reach the target of being self-reliant and to be a 5 Trillion Dollar Economy.  But once emotions go down, there are high chances that customers again opt for Chinese products. (I remember a similar situation when the Dokhlam conflict happened in 2017). Let me not drag this topic as it deviates my main objective. I just want to say that India needs to build up homegrown muscle in reducing the trade deficit rather than limiting it to just alternatives.

Here comes the question? What are bottlenecks even when we see so much effort being put by the Government but only 3 in 56 organizations choose their establishments in India whereas Vietnam-26, Taiwan-11, Thailand-8 got! 

I have read so many social media forwards that are boasting ( Most of the posts/debates are crafted by Political system’s social media paid teams to tune voters' minds). My intention is to say, in reality, India is not winning many companies like other countries (at least in 2019). Like I mentioned in my previous articles, in the year 2019, getting only 3 from the total of 56 organizations moved out of China, makes just 6% as a success rate.

So, with my understanding, I would like to focus on the pain-points which are blockers in attracting the organizations and probable suggestions. Because these blockers are present at different levels and not limited to just political policies.

Education Sector:

• Updating the Curriculum which serves Industry standards.
• Introducing Ranking and Grading towards Academic Institutions. Having Transparent Ranking of all Academic Institutions at the country/region level. This will make Colleges to learn and improve their methods, improving infrastructures so that they can move up in the ladder. 
• Investing in creating Government monitored Incubation Centres and associating them with the Colleges Or by creating a cluster (with a set of colleges).
• Every Medical College should be associated with a Hospital. Similar way, having colleges associated with organizations to tie-up with Institutions. This will help the students to learn which are near to real use-cases
• Encouraging Innovation by conducting Hackathons to solve the real problems exists in that Geographical area. This gives the opportunity to the students learning about customer interaction, problem analysis, the importance of customer satisfaction, etc., which are major playing factors once they get into any organization.  
• Having an associated grade in the Mark memo in Academics towards knowledge sharing or for conducting symposiums. 
• As part of Knowledge sharing, opening up guest lectures from various institutions motivates students and shows the new thought process.
• Many may think this as funny: I also think that: Having all knowledge base documents in local languages will make students refer even though their Academics and Exams are in English. This will help the students to read and grasp quickly the basic knowledge as the document is already available in Native languages. People may think this is crazy about this thought. :). I see that all the countries who are great in Innovation, their students' academics will be in the Native language. 
• Strategy to make mid-level labor:
• As in previous parts of the blog, the academic-bridges got weakened and multiple courses got drained with fewer students. Having a strong hierarchical academic structure with strong career-bridges will make the availability of a workforce with different levels of expertise. Hiring an overqualified member as a mid-level worker will do two damages to the organization and to the employee. Organizations will suffer cost and Employee may lose motivation as he may think that he is overqualified for that job. 
• There is no debate that COST is a major factor for which Organizations move the units to Developing Nations. Enhancing the facilities and infrastructure in Tier-2 and Tier-3 cities will enroll them as a contender. Establishments in Tier-2 and Tier-3 cities save significant investments. This saving helps Organizations to accommodate semi-skilled or low skilled people and open to provide any additional training if required.
• The government should start investing in stabilizing the academic bridges and availability of the workforce across streams.
• India is the big place for Software as of now. Need to increase significantly in other sectors like Hardware, Semiconductors, Manufacturing, and Pharmacy industry which are imports from China. To give an example of how much India depends on China on Drugs:  analysts say India depends on 70% of raw pharmaceutical materials over China.

Challenges in Tier-2 and Tier-3 Cities:

• Organizations are ready to establish in Tier-2 and Tier-3 Cities but there are challenges. Like,
• Local Bureaucracy
• Petty local Politicians
• Land Acquisition
• Many state governments are offering SOPs to companies but these are not enough unless the fundamental problems are addressed.
• Having similar geographical and cultural proximity with China makes Vietnam a preference over India, and the political system is similar - Vietnam is a single-party Communist state. There is no bureaucratic lethargy and democratic or political red tape as Vietnam leadership is conscious that this can damage their ambition of becoming an Industrial Hub.
• The State governments should start a transparent system that gives confidence to investors that their investment is safe.
• The possible solutions would be 
• The land pool per state needs to be created and this should be governed by the Chief minister.
• This should give the Investors the confidence that there will not be any future civil issues.
• Start enabling supply-chain related dependencies. These include Knowledge pool, power, water, transportation. 
• Enabling Demography based Industrial Ecosystem

Example: 

•  Agri, Acqua, Shipping, etc. kind of systems to have preferential places in Coastal Areas.,
• Dry areas can be used for Manufacturing
• Ensure to have good and cost-effective warehousing, power, water, transportation, and other logistical support.
• The fixed time-line based protocol to resolve the disputes or challenges.
• Encouraging local entrepreneurs to start the production units of materials, parts that make a preferable place to investors.
• Asserting to local politicians from Leader of the State that, organizations should not be seen as cash-cow towards their petty benefits. This is one of the major challenges in the country as Local politicians who loot always assume that the investors/organizations have infinite wealth which is a wrong assumption. This has to be reduced significantly to prefer Tier-2 and Tier-3 cities in venturing.
• The same is applicable for Bureaucracy. The hurdles created by Bureaucracy + Local politicians can become Lethal to investors. 
• Governments can come with different single-window departments in handling escalations and procedures based on the investment size. 

Political Leadership:

• A Leader should be Strong, Deterministic, and able to provide a trustworthy environment to say  “No” when others contradict the leadership’s ideas.
• The current central leadership in India is undoubtedly  Very Strong and Deterministic after Indira Gandhi’s era. But still very far from visionary leadership like P.V.Narasimha Rao. 
• One of the big differences between Dr.Manmohan Singh and Current prime minister Narendra Modi is, Accepting Criticism.  Manmohan was open to criticism even from outside of Political Arena. On top of his Scholastic mind, these qualities made him flexible and always reachable. 
• Making personal attacks and pulling the people into political mud is making Businessmen think twice to reach the PM and give open feedback. Few may criticize that not allowing corruption by businessmen is the reason why businessmen are scared to open up with the PM, but it won’t be wise to put every businessman as corrupt. This listening could have helped to think of not going ahead with Demonetisation.
• Many times it might be happening that, Top Leadership might not be knowing about this cyberbullying happening on the business honchos who criticize the leadership. So, top leadership from all parties should provide dos and don'ts to their Party's Cyber-Cells towards this Cyber-Bullying.
• This bullying is not only observed in Central Parties, and it is also observed in many state-level Parties. A culture to welcome suggestions with open-arms is very much required along with open-minded thoughts by not being judgemental need to be encouraged.
• Leadership to keep open forums just to listen, understand, and address the problems.  The political policy should not contradict with Business Policy.
• One of the current leaders like Nitin Gadkari is doing great in his allotted ministry in building Highways. Under his leadership, in a record: India constructed highways length 29km per day in 2019 and made him keep himself a target to reach 60 Km per day in the coming years.

• When I was thinking how could P.V.Narasimha Rao changed the face of India by bringing and executed Economic reforms successfully even he is not an economist by expertise. I looked into the people who managed the portfolios that are very important to support Economic Reforms. This is important because they should be able to dissect and understand the ideas that Bureaucrats are Presenting.  Below are the ministers and their qualifications:
• P.V.Narasimha Rao - Prime Minister - Held multiple political portfolios in Central and State Government as his administrative experience. (To be precise, he is 4th Chief Minister of Andhra Pradesh, Minister of Home Affairs/External Affairs/Defence and then he becomes 9th Prime Minister of India)
• Dr. Manmohan Singh - Finance Minister - Studies Economics at Oxford and Cambridge Universities.
• Dr.P.Chidambaram - Commerce Minister - Studies Business Administration from Texas University and Law from Cambridge. Parents are the founders of two big banks.
• Dr.Subramanya Swamy - Chairman of the Commission on Labour Standards and International Trade - PhD in Economics from Harvard University. His thesis adviser was Nobel laureate "Simon Kuznets"

   This gives the importance of placing the right qualified people in the right positions. In a diverse country with 130 Crore population, the impact of the success/failure of any decision will be huge.

• A significant effort is required from the current government to Industrialists that they are sincere to listen and understand concerns. Industries should be given assurance that their feedback won't be considered as Political (Even if a few of industrialists’ feedback is politically driven). This gives a stern message to Industrialists that the government is practicing a significant distinction between political thoughts vs Business thoughts. 
• The commitment to bring industries to India is also should be seen as a great opportunity by State's leadership as well. Because States have a significant role in accommodating the Industries. It is mutual responsibility in policymaking and providing confidence to Industrialists.

Infrastructure:: Connectivity, Transport  

• Infrastructure improvement, India spent only 4% of GDP [4-4]  in 2019 whereas, Over the past twelve years, total infrastructure investment has accounted for more than 10 percent of GDP on average, putting Vietnam ahead of most East Asian economies [4-5]
• The Government of India is moving aggressively towards increasing infrastructure but a significant increase is required to catch up. 
• The Government of India is developing a land pool nearly double the size of Luxembourg to lure businesses moving out of China. This land pool size is around 4.5 Lakh Hectares
• In recent years, the Indian government has spent US$1.85 billion on infrastructure development at major ports in the country.
• Bangalore is called Silicon Valley of India which has a 1.5 million IT Workforce [4-6]. I saw how much more basic infrastructure development is required. Traffic becomes everyone’s pain. Every 6 months there will be a new road on top of the existing spoiled road. The repeated activity shows the quality of the work that is happening. This throws the challenge that the infrastructure can’t be extended beyond the primary roads and leaves the rural side of cities with pathetic infrastructure with less chance of renovation. 
• Until unless Tier-1 Cities get stable infrastructure, vision won’t get extended towards Tier-2 and Tier-3 cities. 
• When compared, India is far reachable with China’s current logistic infrastructure. This may be in terms of Roads, Transportation, Bullet trains, etc.,

• Developing Eco-Systems so that availability of Semi processed goods which helps the bigger organization to venture. Ensuring and Designing the Eco-system which supports Semi-Processed Goods Availability very much impacts the decision.

Tax System

• The government is doing well here. Recently announced Tax Reforms by Govt.of India for new manufacturing firms planning to come to India where the corporate tax rate was decreased to 15% (17%, including cess and surcharge) from 25%. This is an encouraging move for the organizations.

Innovation Index: 

• One of the strengths of India is the Protection of Intellectual Properties when compared with China.
• Another great strength of India towards innovation is Maharatna, Navaratna companies [4-7] on top of ISRO, DRDO kind of technological marvels. These are high in Technology and also with Revenue. These are technological marvels. The government of India should think about a plan where these institutions can spawn startups. These startups can use the technologies that are already used for a purpose and can be enhanced to spawn different products. Hope we all remember ISRO helped the technology for the artificial foot in 2002 to Jaipur based organization [4-8]
• Below are the comparison Index details between India and Vietnam [4-9]

 

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References:

[4-1]https://www.hindustantimes.com/business-news/new-solutions-needed-to-address-trade-deficit-with-india-china/story-3TxCVwvWIOF896s38z4JgP.html

[4-2]https://www.financialexpress.com/economy/biggest-economic-retaliation-step-india-puts-complete-ban-on-import-of-power-equipment-from-china/2012952/

[4-3]https://www.nomuraconnects.com/focused-thinking-posts/us-china-trade-diversion-who-benefits/

[4-3.1] https://www.bbc.com/news/world-asia-india-48961525

[4-4]https://economictimes.indiatimes.com/news/economy/infrastructure/budget-2019-india-must-spend-200-billion-on-infra-annually-harnessing-private-investment-a-challenge-says-economic-survey/articleshow/70073382.cms?from=mdr

[4-5] https://ash.harvard.edu/files/vietnams_infrastructure_constraints.pdf

[4-6]https://economictimes.indiatimes.com/tech/ites/it-employees-get-nod-to-set-up-trade-union-in-karnataka/articleshow/61568071.cms

[4-7] https://en.wikipedia.org/wiki/Public_sector_undertakings_in_India

[4-8]https://timesofindia.indiatimes.com/city/bengaluru/ISRO-gifts-technology-for-artificial-foot/articleshow/17493616.cms

[4-9] https://www.globalinnovationindex.org/gii-2019-report#