Coincidentally, over almost one year, India has confronted two formidable challenges. Already embroiled in the danse macabre unleashed by the deadly Covid-19 pandemic, it faced the perfidious dragon baring its fangs. Buoyed by its rapidly acquired economic and military prowess, China appears obsessed to gain unquestioned supremacy, first as an Asian hegemon and then as the world’s numero uno .

Around 1980, India’s GDP of $383 billion — in PPP (purchasing power parity) terms and measured in current prices — was 26 per cent higher than China’s $304 billion. Average Indian with $267 per capita income was almost 40 per cent richer than the Chinese at $195. As late as 1990, India, with a per capita income at $368, remained ahead of China, at $318. Within 30 years, China’s per capita income jumped to $10,276 — five times India’s.

Robyn Meredith explains in his The Elephant and the Dragon how, after it opened its doors to the outside world in 1978, China’s economy blazed “faster than any other in modern history”. In 1999, India and China manufactured almost similar number of cars — China 570,000, India 530,000. Soon the scales changed, and how: China turned out 21 million cars in 2019 against India’s 3.6 million.

China today commands a 12.5 per cent share of the global trade, 45 per cent of global steel production, 60 per cent in cement, 65 per cent of electric vehicle parts, 60 per cent in solar panels, and 47 per cent in smartphones. Its commanding heights in global value chains has given it a critical leverage in world trade.

Conscious of India’s economic and strategic infirmities, especially after the 1962 ignominy India suffered, China has indulged in intermittent coercive measures, and obsessively pursued a contain-India policy to restrict its strategic space in the close neighbourhood. This is clearly reflected in its “all weather” bond with Pakistan, and opening its deep pockets to win over Nepal, Bangladesh and Sri Lanka. Consistently inimical to Indian interests, inter alia, China has stoutly resisted India being considered for a UN Security Council seat, or membership to the Nuclear Suppliers’ Group.

Amidst a palpable Xi-Modi bonhomie created by the Wuhan and Mamallapuram (Chennai) summits and frequent interchanges between the Chinese President and Prime Minister, Chinese troops often violated the LAC. Adept at stealth and guile, what Chinese leaders say isn’t necessarily what they mean. To fathom their strategy, one only needs to look at its 4,000-year-old board game of wei qi . Known as Go in Japan and the US, the game of “surrounding” or encirclement also uses deception as advocated in Sun Tzu’s The Art of War.

China has been crafting an audacious geo-strategic project pursued by President Xi Jinping who in 2012, as China’s Communist Party’s general secretary, enunciated his goal of qiang zhongguomeng (strong nation’s dream).

Mao Zedong believed power flows from the barrel of gun. With the gun’s strength and velocity being proportionate to the strength of a country’s economy, it is economic strength that really counts. As a common refrain goes, the best foreign policy for India is 8-plus per cent growth. While fixing the economy on a priority basis is imperative, India must gather its wits and move resolutely, reinforced by sabkaa saath, sabkaa vishwaas .

While its military is geared to effectively defend the borders, the new post-Covid normal is compelling India to build its human capital in terms of healthcare, education, and skills. Far from the required doubling of public expenditure for a transformational overhaul of education, the expenditure has, in fact, fallen from around 3 per cent of GDP to under 3 per cent, against the avowed goal of 6 per cent. Primary and secondary education remains pathetic. Healthcare is in even more an appalling state. The WHO ranks India 184th among 191 countries in terms of percentage of GDP spent on health.

FDI inflows

Crucial as FDI inflows are for India to be a manufacturing hub, they also serve as a barometer of a country’s attractiveness for investment and business. Consider how it continues to struggle for a meaningful slice in the FDI pie expected from companies exiting China because of the pandemic backlash. According to a Nomura study, of the 56 companies that shifted from China during April 2018 to August 2019, only three relocated to India; 26 moved to Vietnam, and 11 to Taiwan.

India has not been able to seize similar opportunities over the last 10 years since several enterprises started looking for China+1 as a sourcing strategy. A McKinsey analysis (2011) found that the enterprises exiting China favoured new destinations like Bangladesh, Vietnam, Indonesia and Cambodia, not India.

Why? Perceptions matter; unpredictability and instability of the policy framework unsettles entrepreneurs, and retrospective taxes or fear of “tax terrorism” only add to woes. Nurtured for long in a licence-permit raj milieu, hostile to entrepreneurship, the bureaucracy finds it difficult to shed its psyche of businesses viewed in a “suit boot” syndrome. It’s not just about arduous land-acquisition process and inflexible labour laws but also about logistics inefficiencies, power costs, micro level red tape all adding to the cost of doing business.

Much of India’s resources remain trapped in small, low-productivity firms. Labour laws ensured India mostly has tiny industrial units, uncompetitive in price and quality, and unable to supply large volumes fast enough.

India’s continued low rank in the Global Competitiveness Report dents investor enthusiasm. Notwithstanding World Bank’s Doing Business rankings showing India jumping several notches, somehow the situation on ground does match up. Investors and businesses find, as former German Chancellor Angela Merkel said during her last visit, it exasperating to negotiate India’s “labyrinth of bureaucracy”.

The governance instrument India has is stubbornly multi-layered and bloated, in need of creative destruction. To be able to leapfrog amidst myriad challenges, the country needs to free itself from the over-codified, procedure-focussed civil service. With an intrinsic impulse to over regulate, innumerable regulatory commissions and appellate tribunals have sprouted.

For every decision, one must perforce consult an ever-growing number of functionaries, each of whom acquires a quasi-veto over every matter. As a new, aspiring India charts a new grid to face the new world order with grit and gumption, it must perforce provide for requisite instruments and wherewithal to realise its potential and shape its destiny.

The writer is a former Managing Director, Container Corporation of India

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