NEW DELHI: In the post-lockdown era, the way the world does business as well as the nature of global supply chains will change drastically. However, with its high cost of production, high taxation rates and red tape, India is in danger of losing out during this tectonic shift, feel top experts.
“In the international economy, there will be a scramble to diversify supply sources so that dependence on one or a few countries reduces significantly. This will create enormous churn in investment patterns,” said Dr Pronab Sen, noted economist and former Chairman of the National Statistical Commission.
Anil Kumar Chaudhary, Chairman SAIL, agreed, saying, “Post-COVID, businesses will reorganise their processes and operations across countries and sectors.”
Sen added, "However, I see the money mostly shifting to East Asia and Southeast Asia. Nothing has changed to make India more attractive." According to a September 2019 study by Nomura, out of 56 companies shifting base from China, a mere three companies preferred India, while 26 decided to relocate to Vietnam. Taiwan was chosen by 11 firms and Thailand by 8 companies.
Subhash Chandra Garg, former Finance Secretary, said, “India suffers from high cost of production, high capital costs, high electricity tariffs, higher incidence of taxes and regulatory red tape. Reports suggest that in the last 5 years, companies that shifted out of China for instance went elsewhere (and) there is little as yet to show that the trend will change.”
The government has been working on a package to make India more attractive which could include tax and duty incentives besides fast track clearances both at central and state levels. However, there is skepticism on the package’s timing and ability to mould business decisions.
Sen feels that in the Indian context, the coronavirus pandemic is “likely to give further impetus towards protectionism. Demands for self-reliance will become more strident and I am afraid, the government will go along whole-heartedly.” India experimented with 'self-reliance' in the 1960s, reducing Indian industry’s competitiveness and pushing up prices unnecessarily, experts point out.
“Economic revival will have to be gradual and calibrated and depends entirely on the process of relaxation of lockdown rules,” warned Dr Pronab Sen. Industry leaders like ITC Chairman Sanjiv Puri also said, “This is a fight that could be longish, with chances of it (COVID-19 pandemic) occurring again.”
While agreeing with this prognosis, the former finance secretary wants the entire goods economy – farming, mining, construction and manufacturing – along with transport and distribution sectors to reopen from early next month, subject to social distancing and health checks. “To minimize misery and death, a choice has to be made”, he pointed out. Garg also advises continuation of lockdown for the services sector for more time even as the digital economy is encouraged to stagger the number of people out on the streets.
The industry too wants manufacturing to be reopened along with transportation and distribution channels in areas other than hotspots, in line with the thinking of the country’s top leadership. However, they are at pains to point out that without ease of movement for the country’s trucking fleet and reopening of sales channels, the economy cannot be jumpstarted. “You cannot manufacture just to create inventory,” pointed out Puri.