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Photo: Mint
Photo: Mint

We should reinforce our red carpet with reforms

Modi has taken a chance offered by China-aversion in the US to pitch India on ‘trust’ as a global hub for manufacturing. It’s time for us to magnetize the appeal of ‘Make in India’

Even as we go eyeball-to-eyeball with China in Ladakh, the official word in Washington is of regret over US indulgence of capitalism with Chinese characteristics. It has been acknowledged as America’s biggest error of foreign policy in four decades, now that Beijing’s hegemonic designs have been exposed, a conclusion that has bipartisan support in the US. This geopolitical context has opened an opportunity for India, one that Prime Minister Narendra Modi has displayed a strong will to capitalize on. Addressing the US-India Strategic Partnership Forum last week, he called upon American corporations to diversify their global supply chains and pitched India as an alternative to China. “The pandemic has also shown the world that a decision on developing global supply chains should be based not only on cost," he said, “[It] should also be based on trust." The message was not lost on anyone: If China was cheap, India was reliable. The red carpet rolled out thus was made of sterner stuff, he implied, a weave of mutual values rather than a flimsy patchwork of savings.

If Republican Richard Nixon’s White House is remembered for forging the Sino-US ties that led Western capital into the People’s Republic, the same party’s Donald Trump administration may yet go down in history for curtailing them, if not snapping them off entirely. Even the Democrat contender for the US presidency, Joe Biden, is reportedly keen to do so. It could be argued that China’s manufacturing supremacy is irreversible. It accounts for more than a quarter of the world’s factory output, a chunk of it done for US firms. But, after Trump’s tariff war and the corona disruption, such enterprises must be aware of the risks of depending heavily on China as a source of supply. Many have begun to spread their input networks and production units around other parts of East Asia. India has made some gains, too, but needs to win a series of big-ticket investments for “Make in India" to acquire a magnetic pull, emerge as a global manufacturing hub, and generate jobs.

Our red carpet, however, would need reinforcement. Just offering tax incentives and “plug-and-play" parcels of land with bundles of ready approvals, as proposed, is unlikely to prove enough. India’s advances on the Ease of Doing Business have lost some weight, as the survey itself has suffered a loss of credibility, lately. Unless a coherent set of reforms aimed at market efficiency are carried out, perceptions of India being a tough business environment might persist. The policy stability that Modi assured US investors, for example, must square with tariff fluctuations and trade curbs under the new thrust for self-reliance. Integration with global chains is best done by letting cheap inputs enter without barriers (or export obligations), but we still have high and even inverted duty structures in many sectors. This needs fixing. Also, we need to shake off India’s reputation for operational delays. This calls for robust infrastructure. It also requires us to slash thickets of regulatory red tape. A study suggests that employers have to contend with more than 1,500 laws that necessitate more than 69,000 compliances and over 6,600 filings every year, most of them at the state level. Above all, we need a domestic economy to expand at its full potential. To achieve this, we may need structural changes that could eventually let the bulk of our resources be allocated by free interactions of demand and supply, and not by any central authority. There’s plenty to be done.

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