In the early days of the pandemic, as countries rushed to close their borders to contain the spread of the virus, global manufacturing operations got disrupted. Supply shocks rippled through the globe. The overdependence on China, which accounted for 28% of the global manufacturing output, became apparent. It also gave rise to calls for bringing manufacturing back within their own borders. The anti-globalisation rhetoric was not a by-product of the pandemic.
It had started a few years earlier as nationalist leaders were elected in different countries on the back of their promise to get manufacturing jobs back. The disillusionment with globalisation had a lot to do with the unequal distribution of wealth it created—with billionaires making outsized gains while average workers saw job losses and income drops.
The pandemic only amplified the cries for local manufacturing that were simmering for some time. Every country in the world, from the US to India, is trying to see if it can shift more production within its own shores. The tensions that many countries have with a belligerent China have only added to the move. Despite the fact that global trade, especially merchandise trade, has slowed sharply, the fear of the death of the globalisation is overblown. Two examples will suffice to illustrate this.
The first is the way countries and companies around the world are collaborating to research, conduct clinical trials and then produce the vaccine. The global collaboration is unprecedented with labs and companies in the US, EU and Asia working in tandem for drug discovery, clinical trials as well as tying up with manufacturers in different nations to ensure enough production capacities. Sure, this could be dismissed as a short-term collaboration in face of a common danger. But many global analysts feel that this will remain the norm even after a cure for Covid is discovered.
The other indicator is that after a sharp drop due to Covid, the flow of funds in search of investment opportunities and deals is again picking up. According to Amitabh Kant, the CEO of policy think tank Niti Aayog, India attracted over $22 billion FDI even during the first few months of the pandemic. In the developed world, there are just not enough opportunities for investors looking for higher returns.
But the post-Covid global alignments will also be markedly different from the pre-Covid ones and Indian policymakers need to understand that. There are advantages that can be leveraged, but only if the proper policies are put in place.
Many analysts have pointed out that regional supply clusters are likely to replace a single manufacturing hub. In Asia, the search for alternatives to China has given rise to opportunities for India but it faces stiff competition from Vietnam, Malaysia, Indonesia and Bangladesh, apart from South Korea, Thailand and Taiwan. Though India has lagged behind these rivals in manufacturing, there are two things going in its favour. The first is that none of its rivals have the capacity or manpower to take up the entire production volumes that are expected to move out of China.
More importantly, India is a huge market and it has never yet leveraged its consumption volumes to attract global manufacturing commensurate with its potential except in the case of automobiles. Apart from cars, India has managed only a thin slice of the manufacturing pie so far, and that is largely because of its chaotic and constantly changing policies.
Instead of trying to compete in everything, India needs to first decide on the sectors in which it has natural advantages or a foothold already in the global supply chain. There is no point in a scatter-bomb approach that wastes resources. What is needed is a sharper focus on areas where capabilities already exist. The pharmaceutical sector has great potential but India has frittered away some advantages by depending heavily on China for APIs. India had a thriving API industry and, with the right policies, it can do so again.
There are other sectors such as textiles fabrics and consumer durables and even food products where it can make a strong play. There are others such as optical instruments or chip fabrication or apparels where it makes little sense to try and compete globally. The big hurdles have always been erratic policies, incoherent and rapidly changing taxes, and issues such as land acquisition problems and local compliances. A lack of quality consciousness, productivity and the tendency to cut corners has also made many MNCs wary of production in India.
Technology products—and not just IT services—could be a big opportunity too. Globally, the technology industry is divided into two clusters—Silicon Valley vs China. The world’s wariness with China’s tech giants and the possibility of a break-up of the Silicon Valley’s big five tech companies because of antitrust hearings provides a chance for India to play in a field it was getting marginalised in.
But first, Indian policymakers need to assure global investors that they can expect sensible laws and policy stability—and not constant tinkering that leads to uncertainties. The window of opportunity is short and policymakers need to get their act together before it closes.
Prosenjit Datta
Senior business journalist
(prosaicview@gmail.com)