NEW DELHI: Once the lockdown ends, the way the world does business is set to change drastically with countries keen to break free from China-dominated global supply chain. However, this doesn’t mean India will gain big from China’s loss. Given its high tax rates, regulatory stranglehold and higher production costs, India may lose out on opportunities thrown up by this tectonic shift.
“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 Pronab Sen, economist and former chairman of National Statistical Commission. Sen says firms will shift mostly to east and southeast Asia as “nothing has changed to make India more attractive”.
SAIL chairman Anil Kumar Chaudhary agrees. “Post-Covid, businesses will reorganise their processes and operations across countries.”A recent Nomura study notes that out of the 56 firms shifting out of China, only three preferred India, while 26 went to Vietnam, 11 to Taiwan and eight to Thailand. “India suffers from high cost of production, high capital costs, high electricity tariffs, higher incidence of taxes and regulatory red tape. We have tried to turn attractive but in last five years, companies that shifted out of China went elsewhere,” said former finance secretary Subhash Chandra Garg.
To make India more attractive for investors, the Centre has been working on a package that could include tax and duty incentives, besides fast-tracking 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 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, which reduced industry’s competitiveness and pushed up prices.
“Economic revival will have to be gradual and calibrated and depends entirely on the process of relaxation of lockdown rules,” warned Sen. Garg said the entire goods economy — farming, mining, construction and manufacturing — along with transport and distribution sectors should reopen from early next month, subject to social distancing and health checks. He also advises continuation of lockdown for the services sector even as the digital economy is encouraged, to stagger the number of humans out on streets.
India Inc too wants manufacturing to be reopened along with transportation and distribution channels in areas other than hotspots. But they say that without ease of movement for trucks and reopening of sales channels, the economy cannot be jumpstarted.“You cannot manufacture just to create inventory,” said ITC chief Sanjiv Puri.