Almost overnight, the coronavirus pandemic changed the dynamics of global geopolitics and trade. One nation, China, was sitting atop the heap, holding a trade surplus with every nation and the tag of the world’s manufacturing hub. Today, the scenario seems vastly different as a massive trust deficit is prodding companies and countries to seek alternative manufacturing destinations.
As one of the prospective alternatives, India could not have asked for a better opportunity in attracting foreign investments in diverse domains, including manufacturing. A developed economy such as Japan has announced a $2.2 billion fund to support Japanese companies shift their manufacturing bases out of China. Other countries are following suit with various measures to diversify their supply chains.
More work ahead
Yet, as the Bard quipped, “There’s many a slip ‘twixt the cup and the lip.” India has its task cut out in attracting global investments on an unprecedented scale. Much will depend on the appropriate policy initiatives that address the needs of global investors.
India is making the right moves. At the India Ideas Summit 2020, Prime Minister Narendra Modi disclosed that the nation had received $20 billion in foreign investments between April and July during the ongoing pandemic. As the trade wars and war of words between the US and China escalate, there may be collateral benefits for India if it plays its cards well.
PM Modi has stated in multiple forums that India and US are natural partners who can play a pivotal role in ensuring the world bounces back more quickly from the corona-induced global recession. As trade deals between the US and China unravel, the PM is right in believing there couldn’t be a better period for investments in India. Unlike China, India offers the perfect blend of opportunities, democracy, IP protection and talent.
For instance, a series of recent reforms in agriculture opened a plethora of investment avenues in areas such as supply chains, agri-inputs and machinery, food processing, fisheries and organic produce, to name a few. Reforms and opportunities in defence are also noteworthy. Another promising sector is healthcare, which has been growing at 22 per cent-plus annually. Significantly, India is the leading power in vaccine manufacturing. Almost 70 per cent of vaccines used worldwide are made in India.
The government could also provide additional incentives and benefits for foreign investors that align their plans with ‘Make in India’. The SEZ policy could be crucial in increasing the presence of foreign firms. India has 231 operational special economic zones and about 355 notified SEZs. There are incentives to promote fast-track manufacturing in SEZs and FTZs (Free Trade Zones).
But one cannot lose sight of the fact that most of India’s manufacturing happens via MSMEs, which depend on China for raw materials as well as semi-finished and finished goods. While supply chain disruptions due to Covid-19 have been painful for MSMEs, India can use this enforced opportunity to decouple and purge its dependence on imports from China.
The time is also ripe for a renewed push for ‘Startup India’. With the focus on Atmanirbhar Bharat, startups will play a pivotal role in reducing the nation’s dependence on foreign goods and services, especially in the tech-heavy space. As countries globally move away from Chinese origin apps, many emerging Indian startups have the potential to become global leaders in their fields. Providing the right regulatory and investment climate is essential to nurture these seedlings. India has 20 Unicorns (startups valued at $1 billion+) against 203 in the US and 206 in China, respectively. Only 6,400 (8 per cent out of 80,000 total startups) in India are funded.
Trade agreements and reforms
To encourage exports and attract allied investments, India must focus on trade agreements with other nations. India is among the leading Asian countries that have the most number of withheld FTAs (Free Trade Agreements) and PTAs (Preferential Trade Agreements). Whereas many are under negotiation, this is the perfect moment to negotiate, sign and implement these trade agreements because most nations are eager to break free from Chinese shackles. Without trade agreements, India won’t be able to integrate with the world economy and benefit from global supply chains via economic cooperation with other nations.
Meanwhile, though India has been steadily rising in the Ease of Doing Business rankings, there are select sectors where reforms are long overdue. Land and labour laws continue being cumbersome. Although the Centre has taken commendable measures in addressing some concerns, more reforms are needed to enthuse investors, national or international.
The other issue relates to implementation. Consider the GST reform, meant to create a single-tax regime across India. Multiple GST slabs and hundreds of rule changes since its introduction in July 2017 have only confounded stakeholders.
No doubt, there is an unparalleled opportunity for India today to grab a lion’s share of global investments. In the past few years, however, Thailand, Bangladesh, the Philippines, Vietnam and Malaysia, among others, have attracted some of these foreign flows. The nation simply needs to get its act together and put in place a cohesive, comprehensive strategy addressing the varied concerns of foreign investors. Once this happens, Brand India will certainly emerge as the world’s top investment destination.
The writer is Managing Director-SI Advisors and co-founder-Clix Capital