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Why India need not do a 'China' in Emerging Global Supply Chain!

TIOL - COB( WEB) - 821
JUNE 23, 2022

By Shailendra Kumar, Founder Editor

THE world has turned into a colosseum of absurd politics! And absurdities often irrupt into new narratives! Some of the geopolitical and economic powers have evidently been playing the giddy goat and clearly falling a few bricks short of a pallet! Devilish but itching to give a roasting time! Not being happy stopping at subtle acts of sneezing at, they have taken a rude plunge to deal a bloody nose! For the Russian President, it is like shooting fish in a barrel! And, for his Chinese counterpart who is daring to play a rough 'rugby' over Taiwan, it is thus far a case of neither fish nor fowl! Ahoy! A case of geopolitical diarrhoea! A prophet of senseless violence! History, if not repeating itself, is certainly rhyming! And it is happening at a time when the Covid-scarred world was looking forward to cessation of all hostilities and, certainly not a walloping recession! Dark clouds are gathering over economies everywhere! The global economy is in spasmodic griping pains - writhing like a fish out of water! The twin swords of Damocles - inflation and the pandemic, continue to hang thick over a large swathe of global economy! Palpable fears are pervasive about impending recession - an outcome of supply chain disruption, engendering soaring inflation!

The tenuousness of the global supply chain was first exposed by the COVID-19 and later exacerbated by the Russian invasion of Ukraine. With the pandemic playing hide-and-seek with the dynamic zero-covid policy of China - a dominant player in the global supply chain, the recovery process elsewhere in the global economy was patchy and intermittent! Then thudded on the European horizon the sudden shelling of the Ukrainian capital Kyiv. No time to moat one's house! The US-led Western bloc flurried through a raft of economic sanctions which further triggered a fresh bout of disruption to the global supply chain, especially of two key commodities - energy and wheat. Both the warring countries earlier accounted for close to one-third of global supply of oil, gas and wheat. With wheat silos under artillery fire and the key ports being corked with naval mines, it further spiralled the zombie of inflation. Poor African countries have failed to tame the soaring price of wheat - almost 66% rise in May!

Similarly, the rich EU cutting back on gas and oil, is grappling with high energy costs with 'tears' rolling down its cheeks! Worse, the Green-committed EU has gone back to the days of hot-coal walk a la re-ignition of coal-fired power plants in Germany, Austria and the Netherlands. China and India defying the West's sanctions have ended up cushioning the rouble to an unlikely status of the world's best-performing currency! Hahaha! Meanwhile, inflation and lurking fears of stagflation, appear to be getting 'pollinated' to new parts of the world! With the Fed raising the interest rates, the hard-landing of the world's largest economy is not ruled out!

Hope is certainly not in vogue! In a nutshell, the world has run out of hope to find effective palliatives for the broken supply chain. Secondly, the global economy today stands so much fragmented that deglobalisation and decoupling of battling geopolitically dominant economies appear to be gathering more steam! Against this excruciating backdrop, a new international order is furtively in-the-making! And while talking about the post-Ukraine international order here in New Delhi, the former British Prime Minister, Mr David Cameron, latterly said that the next few decades belong to India! He further explained that there is a real opportunity for India to be a real thought leader on three key fronts - economy, showboating inherent strengths of democracy and the climate change. He further added that India is one of the fastest growing economies in the world which is also spurring global growth.

Now, the trillion-dollar question is - Can India really do a 'China' to be an effective balm for the creaking global supply chain? If not as an outright substitute to China, can India at least ascend to the level of being the second reliable motor of growth for the global economy in the coming decades? History does offer us many lessons! If 2022 is reckoned as the starting point, India, as per various noisy statistics, stands at a better footing than where China was in the year 2000! China had about USD 1.2 trillion GDP which raced to USD 17 trillion in 2021. Many macro-indices favoured China during this run of over two decades! The West was in dire need of a factory - cheap workforce; extended working hours (996); cheaper raw materials and economic salvation-tinged state policies! And the West, not only liberally transferred technology, technical knowhow and the capital but also wittingly shut its eyes to allow China to purloin its scientific and patented commercial data! And as the saying goes - Fortune favours the 'brave', the global trade burgeoned, largely without much bumps, during this period. And China simply reaped an immensely rich harvest!

From 1995 to 2008, the value of global trade in goods shot up from 17% to 25%. The share of goods in the value of global supply chains spiralled from 44% to 52%. Trade-to-GDP ratio or call it 'Trade Openness Ratio', which is construed as an indicator of the process of globalisation, leapfrogged from 20% in 1995 to 30% in 2014. For large economies with large population, such ratio is generally low which means lesser dependence on trade with a tangible semblance of self-sufficiency. And the reverse is true for smaller countries. For instance, it is 23% for US and 31% for Japan in 2020. It was 38% for India and 35% for China in the same year. For UK and Germany, it was 56% and 81% respectively. Undoubtedly, China has taken long strides on the prosperity turf but its economy also leans heavily on the global trade to keep it oiled and sprinting! Stability in global supply chain is what the world economy warrants to ensure inflation-free life for consumers! However, it does not happen in real life as economic muscles tend to lend geopolitical wings to 'sleepy dragons' in the cerebrums of autocrats! Ukraine war is one live example. Aha! Zero-Covid policy which has hugely sapped China of its vims, is another!

Given the pervasive geopolitical tensions and the growing realisation post-Covid to diversify the global supply chain, a whale's-eye view of the underneath movement of 'tectonic plates' may reveal that although globalisation would survive and, it should if poverty is to be cut back, but certainly not China-fired as the behemoth will increasingly slow down! True, diversification costs mountains of money but there is going to be a multiple-channel supply chain in the new international order. Large corporations would be splitting the capacity of their plants located in one or two countries and transforming their warehouses into factories at multiple locations to cater to their markets in vicinity. This would not only save them from the vagaries of soaring logistics costs and the hurricanes like COVID and Ukraine War but to also comply with the tectonic changes being effected in the international taxation regime!

So, what should India do? No doubt, India is a large economy and given its between 7-9 per cent growth forecast, it can emerge as a reliable and sustainable 'Second Motor' of growth for the world economy. Secondly, not only for exports but also for its own self-sufficiency, it direly needs to gin up its industrial production to at least a quarter of the GDP. Unlike China which was able to push it to above 30% at one stage, India should realise two things - one, the golden phase for the global trade in goods is over! It has declined from close to 60% in 2019 to 51.6% in 2020. Such a process had commenced since the early 2010s. With diversification in the supply chain being underway in many countries - near-shoring syndrome, the world would not require another 'China-like' factory - there would be multiple motors now! The MNCs are now reluctant to depend on any one or two suppliers which is in itself a check on India's ambitions!

Second, India's strength lies in exports of services. With the WTO being revived and skilled manpower paucity becoming a challenge in many rich economies, India needs to focus more on schemes like 'Skill India'! Our services sector already accounts for over 60% of the GDP. With digitalisation, it would grow more rapidly. Technological change is immensely changing the range of exportable services. In services, India being an English-speaking country, has many more inherent advantages. In 2020, global services accounted for 22.6% of the global trade and is projected to rise @ 10% for several years. With more reforms, easing of regulations and also the ageing of population in many countries, India would stand better chance to dominate the rising segment of the world trade. It is a much bigger fish for India to fry if India cradles new ideas to improve its education system coupled with skill-imparting missions! Globalisation is not going anywhere - it is merely going to be a chastening experience for it, for some years! And, India just needs to prepare its younger generations for it. True, too many elephants in the room to address! But, the ladder to a global mantle cannot be without its own share of hard work and pain! Crises would always roar through but a resolve to grow on the plank of economic nationalism would bring India to a stage where one may feel like screaming with joy! Yee-haw!