Sunday 30 August 2015

VIOLENCE AGAINST WOMEN



In one moment, you name her an avatar of goddess Lakshmi. The very next moment she is beaten up for not cooking well. One day you pray to goddess Saraswati, the next day you want your daughter to discontinue her schooling.
Why can our society, that pays homage to women as forms of goddesses, not respect women? You want a wife, a daughter-in-law, but a daughter is unacceptable – so unacceptable that she is killed in the womb itself.  Isn't this hypocrisy which prevails throughout our nation? 

     
It is a bitter truth that a girl child is put to death by her very own parents. Yes, her parents. It is not just the father who decides against a daughter. In some cases, even the mother (who is, herself, a woman) does not want to bear a girl child. Often women find their greatest adversaries in women themselves, in the form of their mothers, grand-mothers or mothers-in-law. This is not just an alarming irony, but a shameful aspect of our society.

Girls are deprived of education because of an orthodox patriarchal belief-system that claims that women belong in the kitchen. Well, I believe this belief-system itself belongs to a garbage-can. Gone are the times when men were the sole earners of bread for the family. Education is not only a need but a necessity for all.

  
Many people believe that having a daughter is a burden. Why does that come up? There is a hideous custom as the principal causal factor – the dowry system that is closely woven into the fabric of our society. Marriages that involve dowry are not marriages but business deals. If the in-laws are not satisfied, the girl is further mistreated. You will find many cases of this nature in daily news. Several more cases do not even come up in the news because the woman is forced to silently go through this torture because, according to our society, a wife moving out of her husband’s house is shameful for her parents.

Why cannot a father, instead of blessing his daughter with gold and diamond jewellery, bless her with the promise that his arms would remain available to her whenever she is wronged by anyone. US Representative Hilda Solis (2005) has rightly said, “We have more shelters for animals than for battered women. That is not the message we should be sending”. A woman cannot find herself safe anywhere! Be it in a crowded market, where she is exposed to the vulture-like eyes of men of all classes and ages, or be it in her own home. One of the defense lawyers of the Nirbhaya case, as shown in the documentary ‘India’s Daughter’ (2015) said, “If you put sweets on streets, dogs will come and eat them”. Sadly such statements by professionals, and even dignitaries, are common. 

Laws are of no use until the mindsets of people do not change. If a girl is raped, often, she is asked to shut her mouth as it would bring disgrace to her family. Why is it that she is made to believe that being raped was her fault? This is the thought that breaks a victim the most. As Freda Adler (1955), a criminologist says, “Rape is the only crime where the victim becomes the accused”.

Society has to overcome this dual mindedness – wherein on durgashtami they seek blessings from girls (referred to as kanyas), and on other days ruthlessly suppress them. Women of this country need to start fighting the system and societal constraints.

Stand up,  
because no one else would. 
Stand up,
with your head held high.
Know that your dignity is your right,
so put up a fight.
Don't let those wounds break you.
Don't let them rule over you.
Respect yourself,
because if you don't, 
no one else would.

Shikha Asrani
 

RBI Governor, Raghuram Rajan, too over-confident? 



RBI governor Raghuram Rajan shot to fame for correctly predicting the global economic meltdown in 2008. He is the poster boy of the Indian middle class with all the right education, starting from his schooling in DPS R.K Puram followed by graduation in electrical engineering from IIT Delhi followed by his post-graduation from IIM Ahmedabad and, finally, his PhD from MIT Sloan School of Management. Clearly, he is well educated but is he acting a little too cocky for an RBI governor?

Being a chief economist at the IMF provided Rajan with a whole set of challenges, which he faced brilliantly, but as the RBI governor his tenure has not been that impressive. While initially he was projected as a rock star governor who will turn-around the fate of the Indian economy with his bold decision-making; but sadly no concrete steps have been taken to improve the  status of Indian economy.
On one hand he talks about bold new economic policies and reforms, while on the other hand he talks about how a rate cut is not needed and the RBI will intervene when necessary. The ground reality is that the Indian economy is facing a severe cash crunch – one it has never faced before - and there is virtually no liquidity in the market along with interest rates being as high as ever.
The Indian rupee is weakening against the dollar and the volatility has increased the cost of hedging to protect against the fluctuations, which are as high as 90 paisa a day .The official statement of the RBI is that it is closely monitoring the situation and will intervene when necessary. Although foreign reserves are at an all-time high, the RBI is not taking steps to strengthen the rupee. The RBI keeps clamoring about china being responsible for the situation and global markets being  in a state of turmoil but it fails to factor in the weak crude prices, which are a whopping 37% of India’s import bill, that have reduced India’s current account deficits along with reducing inflation due to lower transportation costs and other indirect factors.
The Indian economy is waiting for a long overdue rate cut, which the RBI had set aside for tougher times. Globally, governments have reduced interest rates as well as pumped money into the system but the RBI has done neither and it appears that it is a mute spectator like all the rest of us. For the past three economic policies ,the industry has been anticipating rate cuts but have gotten none or a meagre 25 basis point cut, which banks did not pass on to industry or consumers. Industrial output is at an all-time low and Indian exports have fallen for the eighth month in a row despite a weak rupee.
It seems that Raghuram Rajan is a little too over-confident and is just a mute spectator while the Indian economy is being hammered – pretending that the Indian economy is in a great state relative to other countries. Clearly, something is wrong with our economy and no proactive steps are being taken to cushion the economy. It’s high time that the governor springs into action, needless to say a 50 basis point interest rate cut is as essential as ever.


Archit Aggarwal

Wednesday 26 August 2015

INDIA-SOUTH KOREA COMPREHENSIVE ECONOMIC PARTNERSHIP AGREEMENT 


The Republic of Korea and the Republic of India signed the Comprehensive Economic Partnership Agreement on 7 August, 2009 and it came into effect on 1 January, 2010. This was India’s first CEPA with an OECD country and ROK’s first with a BRICS country. 

Its objectives include the liberalization and facilitation of trade in goods and services, and expansion of investments; establishment of a cooperative framework, based on transparent rules, for enhancing economic relations through promotion of conditions for fair competition in the free trade area and favourable environment for businesses; creation of effective procedures for the implementation and application of this Agreement; exploration of new areas of economic cooperation and appropriate measures to strengthen the same; improvement of efficiency and competitiveness of their manufacturing and services sectors, and expansion of trade and investment; establishment of a framework for further regional and multilateral cooperation, to encourage the economic integration of Asian economies. 

The trade deal commits the two countries to lowering or eliminating import tariffs on a wide range of goods over the next 8 years, and helps expand opportunities for investments and trade in goods as well as services. CEPA classifies about 11200 tariff lines of ROK and 5200 tariff lines of India broadly into 6 categories for the purpose of reduction/elimination of tariffs – based on the time period of implementing reductions. ROK is to phase out or reduce tariffs on 90 percent of Indian exports while India will phase out or cut tariffs on 85 percent of Korean exports. Most of the agricultural products and textiles, being sensitive to both sides, figure in exclusion category. Rice, beef, blue crab and sesame would not enjoy any reduction in tariffs. Further, the CEPA agreement has allowed the opening of the services market, in sectors such as telecom, construction, distribution (including retail), transportation, real estate, energy distribution, etc in the case of India. It also mutually expands job opportunities for computer specialists, engineers, managing consultants and assistant English teachers. In the financial services sector, India agreed for 10 Korean banks to establish branches in India. It also allows temporary movement of 163 Indian professionals such as computer programmers and engineers, inter alia, to access the Korean services market. 

As a result of the Agreement, bilateral trade in 2010 increased by 40% to US$ 17.57bn, and in 2011 increased by 20.28% to US$ 20.57bn. However, in 2012, with a fall in Korean export growth due to a drop in ship sales, bilateral trade fell by 5.8% to US$ 18.84bn. Trade in 2013 recorded a decline of 4.5% to US$ 17.56bn. The balance of trade continues to favour Seoul. During the then Prime Minister Manmohan Singh’s visit to the Republic of Korea in 2012, both sides agreed upon setting the bilateral trade target of US$ 40bn by 2015. 

Korean FDI to India (up to September 2013) stood at $2.93 billion, as per the ExportImport Bank of Korea. The world’s fourth largest steel maker, POSCO, proposes to invest $12 billion in an integrated steel plant in Orissa. There have been delays, but the pace of implementation has now picked up with environmental clearance being accorded in January 2014. Separately, POSCO has completed construction of its first steel mill in Maharashtra. Major Korean conglomerates that have invested in India also include Hyundai Motors India Ltd, Samsung electronics, LG Electronics, inter alia. 

Indian investments in ROK up to 2012 were about $ 1.3 billion, with major ones being Novelis Inc., TATA Motors Ltd., Mahindra & Mahindra, inter alia. A Joint Committee at the Ministerial level headed by the Ministry of Commerce and Industry, India and the Korean Ministry of Trade, was established, in 2011, to undertake an annual review of CEPA implementation. During the visit of President Park Geun-hye to India in January 2014, it was agreed to establish the "India-ROK Joint Trade and Investment Promotion Committee" at cabinet level to replace the aforementioned Ministerial Joint Committee. 

Further, during Prime Minister Narendra Modi’s visit to the Republic of Korea in May 2015, both sides welcomed the commencement of negotiations to amend the India-Korea CEPA by June 2016 with a view to achieving qualitative and quantitative increase of trade through an agreed roadmap. 
  

Akshara Bhargava

Monday 24 August 2015

INTERNATIONALIZATION OF RUPEE : A REPORT


 DOCUMENT STRUCTURE

1 :  INTRODUCTION

2 :  HISTORY OF INTERNATIONALISATION

3 : INTERNATIONALISATION OF INDIAN RUPEE

4 : COSTS AND BENEFITS OF CURRENCY INTERNATIONALISATION

5 : IMPACT OF CURRENCY INTERNATIONALISATION ON VOLATILITY OF FOREIGN                 EXCHANGE AND CAPITAL FLOWS

6 : MICRO AND MACRO ECONOMIC MEASURES

7 : CONCLUSION - LESSONS FOR INDIA

 

                                      INTRODUCTION 

          There is no well-established framework to define what is meant by internationalisation of a currency. A currency can be termed international if it is widely accepted across the world as a medium of exchange. In practical terms, it would mean the use of the currency for invoicing and settlement of cross-border transactions, freedom for non-residents to hold financial assets/liabilities in that currency and freedom for non-residents to hold tradable balances in that currency at offshore locations. The internationalisation of a currency is an expression of its external credibility as the economy integrates globally.. Limited or full use of an internationalised currency as legal tender in certain other countries is a possibility. Further, limited internationalisation within a geographical region is also possible. For example, the South African rand (ZAR) has the characteristics of an international currency in the neighboring countries viz., Namibia, Swaziland and Lesotho.
        The main economic factors underpinning internationalisation of currency are: (a) domestic stability which makes the currency attractive as a store of value; (b) a well-developed financial system with deep and liquid markets offering participants a wide range of services and products in terms of borrowing, investing and hedging; and (c) a big size economy compared to the world output, financial markets and a significant role in trade leads the outside world to increase the demand for internationalised currency for transaction purposes, and also to consider the use of such currency when making portfolio decisions. In sum, these factors include all things which may contribute to speed, efficiency, reliability and user-friendliness of the currency.
 

                      History of  Internationlisation


The pound sterling was the first currency in modern times to assume an international currency, as a result of Britains dominant position in international trade and investment in the nineteenth century. However, Sterling now has only a very modest role as an international currency as compared to its position a century ago (Latter, 2000).

The US dollar owed its emergence as a major international currency initially to similar factors as did Sterling namely the strength of the US economy and its weight in global business. The position was consolidated when the dollar was the only significant currency to remain fully convertible after the Second World War. The US dollar continues to be a dominant international currency despite changes in interest and exchange rates, Swiss Franc was at one time disproportionately important as an international currency, albeit in the rather narrow sense of being a haven for savings, rather than as a major vehicle for international trade or fund-raising. Switzerlands record of political stability and economic prosperity was one factor leading the attractiveness of the Swiss franc, but so also was the tradition of banking secrecy.

BITTU INDO CHINA


1. Introduction

India and China have a lot in common. Being ancient civilizations reincarnated as modern republics around the same time, both countries have lived through tumultuous times domestically and internationally. Today they have emerged as rising powers in Asia, striving to make this century as the one belonging to Asia. One of the distinctive characteristic of the relation between India and China has been the role played by extraneous actors (read Pakistan, USA and Japan).

The Sino-Indian relationship is multi-dimensional, ranging from the issue of border conflict, economic interdependence, to societal and cultural interactions, all of which can’t be dealt with in the limited space under this research paper. Thus, we will limit our analysis to the economic aspect of this relationship.

In the ensuing chapters we will try to list out the nuances of economic interactions between the two Asian giants. This will be done by underlining the historical evolution of the economic relations. In order to have a better understanding of the topic, we have solicited the help of a case study whereby an attempt is made to compare the emergence and evolution of SEZs (special economic zones), often credited with the reason behind China’s emergence as the manufacturing hub of the world, and their functioning in India and China. In the later sections, we have tried to chart out the present scenario and the contemporary issues on economic front, such as convergence on multilateral platforms like WTO as well as future avenues of cooperation (BICM corridor, Silk Route Economic Belt, Maritime Silk Route etc.)

In the final section, the future course of action for the two countries have been looked into. Whether the 21st century will belong to Asia is contingent on the question that whether the two giants will be able to look beyond their differences, which entails a deeper understanding of each other’s domestic compulsions and state-society relations.

2. Overview
2.1: Historical Legacy

While an individual has the agency to choose his/her friends and enemies, this agency of choice doesn’t translate at the macro level to the nations. A country doesn’t have any control in choosing it's neighbors. The Sino-Indian relations should be analysed in light of the above statement. Both India and China emerged as independent republics at almost the same time but reached this point via different paths- one coming out of the bounds of colonialism while other riding on a communist revolution. The future course of development adopted by the two also differed but since no country can function in isolation, the interactions between the two countries became imminent. Though there are numerous dimensions to this relationship, we will try to limit our analysis to its economic aspect only.

The legacy of relations between India and China began to change in the 1980s, with the opening of both economies. The shift in both countries from an import substitution to an export promotion strategy during the1980s, led the focus to shift gradually to economics. With the onset of the process of globalization, an added impetus was given to enhanced economic cooperation between the two nations.


2.2: Relations under the New Govt.

The Sino-Indian relationship has been infused with fresh energy following the landslide victory of BJP in May last year. The interest shown by Beijing throughout the run-up of the elections and following the announcement of the results are ominous of a new chapter in the bilateral relations. It no doubt has increased the prospects for cooperation but, at closer inspection, an increase in the probable avenues of conflict also become apparent.

China was one of the very first countries to congratulate Mr.Modi for his landslide victory. The increased enthusiasm from the Chinese has been manifested in the visits by the top-brass of the Chinese business and political leadership, including that of President Xi Jinping in September. The images of Mr.Modi and Mr.Xi strolling alongside the banks of Sabarmati river indicate a new found dynamism in the conduct of Indian foreign affairs, and also an attempt to strike a personal rapport between the two leaders.  

Let us now try to explore the reasons that elicited such positive response from Beijing.
     With a strong Centre in power in India, concrete and fast-     track decision-making is set to replace the lax and indefinite approach of the previous government, attributed to the exigencies of coalition politics.

     In light of the protracted relationship of Modi vis-a-vis USA (read Visa issue), China hoped that by bringing India closer it can stall any attempts of containment planned by USA in association with India. However, Chinese hopes seem to be quashed following an increase in the diplomatic interactions between India and USA. The Chinese dejection is reflected in the warning that it issued to India for not to be swayed by the American promises, following the Joint Statement during Obama’s visit to India earlier this year.

     Modi’s pro-business attitude is hidden to none. In his earlier stunt as the Chief Minister of Gujarat, he visited China in 2011 and established close links with the businesses there, providing them incentives to invest in the state. His government’s another flagship program, ‘Make in India’, is another step in that direction.

     China at this point of time considers India as a lesser threat. It seems to be pre-occupied with deterring the problems posed by USA and Japan. Moreover, it is also trying to project itself as the leader of the developing world and in that regard India can assist it considerably at multi-lateral platforms.                                                                                                                  

Thus, in a nutshell, it is safe to say that it is more prudent, not only for India but also China, to coalesce rather than compete against each other. This line of thinking seems to be reflected in the gradual emergence of economics as the determining factor in the Sino-Indian relationship instead of looking to resolve the border issue, for the time being.

2.3: Case Study: Shenzhen SEZ

“As of now China has only 5 SEZ while India has approved 200 and still counting. Export from only Shenzhen has crossed $ 200 Billion in 2010 which accounts for one-seventh of China's total. How come China's SEZ is this effective compared to India.” While browsing through Quora, we once came across this question prompting me to obtain a greater understanding of the issue and playing a factor in me choosing this as our topic for case study.

Anyone studying the economy must have come across the word SEZs (Special Economic Zones). It is often been argued that SEZs were the drivers of the incredible economic growth witnessed in China making it the manufacturing hub of the world. Not many of us would be aware of the fact that the first SEZ (earlier called Export Processing Zone) in Asia was set up in India in Kandla, Gujarat in 1965. However, it failed to capitalize on this relative advantage and China has been more successful in its application and appropriation of the benefits accrued out of it.

With SEZs being indispensable in Chinese case and the inability to produce identical results in India, the study of these SEZs in the Indian and Chinese case can provide a deep insight into the present state of the two economies.

In our analysis we have taken the case of Shenzhen, which is not only the earliest SEZ project in China but one of the largest in terms of geographical area it covers.
Shenzhen, an erstwhile small fishing town on the south-eastern coast of China, bordering Hong Kong, burst onto the world scene in the ‘80s following it being approved as the first SEZ project in China in 1979. Shenzhen heralded the essence and evolution of China’s earlier domestic reforms and global integration.

Socioeconomically, while adventurous individual pioneers searching for private fortune or religious freedom built the boomtowns of the old American West, Shenzhen became an ―”instant city as a result of it having been designated as a SEZ - thus its growth was propelled by a purposeful push from a powerful state. Its boom was sustained by the extended implementation of favorable policies and rapid and continued build-up of large-scale, state-financed infrastructure. Additionally, Shenzhen would not have boomed without the collective toil of many risk-taking migrant laborers.

Shenzhen is one of the largest SEZs in China, covering an expansive area of around 2000 sq. km, two times as much as Hong Kong. The establishment of Shenzhen SEZ should be seen in the light of the promulgation of Joint Venture Law, 1979, and The Regulation on Special Economic Zones, 1980. The concept of SEZs, bearing resemblance to the Export Processing Zone (EPZ) model followed in several other countries at that time, was a bold initiative for a country that perceived itself as upholding socialist ideologies. Market leaders like Huawei and Shenzhen Marine Containers Group (Ltd.) have made use of the growth prospects provided by the virtue of this area being a SEZ. In addition companies of international repute like Toshiba, Ricoh, Epson and Xerox have established high volume manufacturing hubs, that contribute 21% of their world output.

Let us now devote some time dwelling upon the reasons to uncover the success story that is Shenzhen.
     Starting from a modest population of 30,000 in 1979, it has come a long way in the last three decades with its population numbering in excess of 12 million. One important observation can be made here is that it boasts of a huge migrant population, constituting almost 83% of the total population.

     The Central Government has provided special policy environment for Shenzhen SEZ, thus creating “soft environment” to upgrade the industrial competitiveness in the city. This reflects in the special tax regime in place, especially for high-tech industries. Before 2005, the enterprises in Shenzhen SEZ enjoyed preferential revenue tax rate, i.e., 15%.

     Shenzhen is the most active city in the sector of risky investment in China. By the end of 2005, the number of risky investment organizations in Shenzhen accounts for 1/3 of China. In Shenzhen, there are Shenzhen Stock Exchange, Trading Center of Hi-Tech Equity Rights, Shenzhen SME Guarantee Center, etc.

     The infrastructure is well-established in Shenzhen. For example, its harbor ranks No.4 in the global container transportation, and its airport No.4 in terms of passenger flow. All of these conditions have built a favorable logistic environment for the upgrading of the industrial competitiveness in the city.

     Shenzhen neighbors Hong Kong, so the upgrading of the industrial competitiveness benefits from Hong Kong as the international financial center, information center and efficient intermediate service center.

However, one must keep in mind that the picture is not as rosy as it seems at the first look. Shenzhen SEZ, like most of those anywhere else, is fraught with the problems like the issue of integration and equal rights to the migrants, use of this means by private houses to acquire precious agricultural land at throwaway prices, undermining of labor rights, amongst others.

Now we are better endowed to answer the question asked at the beginning of this section – that regarding the comparison of SEZs in India and China.
     The People’s Republic of China began its tryst with SEZs in ‘80s and gained success only in ‘90s, speaking volumes about the gestation period for such initiatives. Whereas India initially started with EPZ and jumped boats only in 2005 after failure of the initial model. Hence, in essence, India being a late entrant needs some time to catch up to China.

     Difference in Size: Chinese SEZ blueprint says, Size Matters for SEZ. Shenzhen is the largest SEZ in China, as is already explained above, and is spread over 493 Sq Kms. (49,300 hectares). While the largest SEZ in India, Reliance - Navi Mumbai and Maha Mumbai SEZ, is mere 14,000 hectares. The minimum area required to set up an SEZ in India is merely 10 hectares. How can self-sustaining infrastructure be developed in such small area?
·         In China the SEZs are fully operated by the state, whereas in India the provision for operations by private enterprise and joint sector is also present.

     In China, the labor laws are relaxed whereas such a flexibility is completely absent in the Indian case.

     In China a lot of careful planning and deliberation has gone into deciding about the location of these SEZs, all located in coastal areas near business hubs like Hong Kong, Macau and Taiwan. In contrast, Indian SEZs are allocated arbitrarily which dissuades the export-oriented businesses from investing in these areas.

     Chinese mantra for success is its focus on ‘quality rather than quantity’. While China has 6 SEZs in total, India has already commissioned more than 200 SEZs with many more in the pipeline.

     Policies in Chinese SEZs are characterized with a degree of experimentation, insulating it from laws in the rest of the country with an eye on attracting investment. In Indian SEZs, the rules are dictated by fiscal sops (standard operating procedures).

     Lastly, but most importantly, Chinese SEZs are based on foreign investment whereas their Indian counterparts have failed to woo in the foreign capital and is essentially driven by local capital. Government’s ‘Make in India’ initiative which underpins a single window clearance for forign capital can go a long way in removing this lacuna.

2.3: Prospects for Cooperation in future

The sixth BRICS summit held at Fortaleza (Brazil) on 15th July provided an important platform or the first ever meeting between PM Modi and President Xi. Alluding to its significance President Xi remarked, “When India and China meet, the whole world watches”. This is no exaggeration if we take cognizance of the economic clout of China and the potential and demographic advantages of India, especially if the two countries decide to work together.

There was much enthusiasm ($100 billion investment package) before the visit of President Xi to India in anticipation of a large Chinese investment package, especially on the heels of successful Japanese visit by Modi which enabled India to secure a $35 billion Japanese investment. Though these hopes were not reciprocated completely fetching a ‘mere’ $20 billion Chinese investment, the economic relations between the two nations received a new fillip.

Let us now invest some energy to list out the avenues for future prospects of cooperation.
     In order to turn the skewed trade imbalance (amounting to almost $40 billion), China will invest into projects focusing on improving manufacturing sector in India. It includes setting up of industrial parks with the help of Chinese capital and a MoU was also signed in that regard. Also, China will modify its economic policies to facilitate Indian export of minerals and pharmaceuticals.

     China has floated the idea for several multi-national economic initiatives in the region, namely, Silk Road Economic Belt, Bangladesh India China Myanmar (BCIM) Corridor and Maritime Silk Route. However, these actions have also been perceived as expansionist tendencies in China, consequently making India a reluctant party to these engagements. For instance, the Chinese attempts to enhance its presence in the Indian Ocean region is looked at critically in India. But one must be considerate that China is doing so to safeguard its energy supplies.

     In order to counter the Western influence in financial institutions like World Bank and IMF, the BRICS nations at the Fortaleza summit New Development Bank and Contingent Reserve Agreement with an initial capital of $100 billion. The bank will be headquartered in Shanghai with India being its first President.

     China and India have continued to cooperate at the platform of WTO. Both have joined hands in unequivocally criticizing the West for following protectionist policies in the context of import of Indian and Chinese goods.

     Both India and China are proficient in the fields of services and manufacturing respectively. Thus, if the two countries can combine forces with India providing the software expertise and China supplying the hardware, their amalgamation will result into world class products.
3. Conclusion

On the whole, the complex India-China relations are undergoing a churning process. The rise of a strong nationalist party under the dynamic leadership of Prime Minister Narendra Modi, who is determined to give a big push to India’s economy through infrastructure development, will certainly resonate in the narrative of the relationship between the two countries. China seems to be an important partner in Modi’s scheme of things. India’s bonding with Japan and USA will also play out in the complex India-China relationship.

Notwithstanding the asymmetry between the two countries, China has to take into account the rising profile of India’s economy, its demographic dividend and global standing. India on its part has been very respectful to China. The goodwill and affection that PM Modi extended to President Xi during his visit to India seems to point at the establishment of an enduring personal rapport between the two.

India only stand to gain by being friendly towards its northern neighbors, not otherwise. India has neither the necessity nor capability nor even the inclination to pick up a quarrel with China. PM Modi, however knows well that while dealing with China, India cannot demand respect, but can only command respect which comes from a position of strength, and not weakness or vulnerability. The way forward for the two countries should be to promote their economic relations in the hindsight with border issue being resolved amicably through discussions, dialogues and deliberations, not letting it hinder the benefits that can be accrued though economic cooperation. A win-win relation between the countries is not an option, but the only choice.

4. References

     David M. Malone, ‘Does the Elephant Dance: Contemporary Indian Foreign Policy’
     Dr. Rup Narayan Das, ‘India-China Relations 2014: Engagement amidst Security Dilemma’, World Focus (December 2014)
     Dr. Guo Wanda, ‘Improve Industrial Competitiveness Based on SEZ Advantages: With Shenzhen SEZ as a Case Study’, China Development Institute
     Xiangming Chen and Tomas de’Medici, ‘The “Instant City” Coming of Age: China’s Shenzhen Special Economic Zone in Thirty Years’, Center for Urban and Global Studies: Trinity College, Hartford, Connecticut
     Quora, ‘What's the difference between India & China's SEZ policies?’, http://www.quora.com/Whats-the-difference-between-India-Chinas-SEZ-policies#
     K. G. Mallikarjuna, ‘A Comparative Study on Indo-China SEZs’
Mathew Southerland, ‘China-India Relations: Tensions Persist Despite Growing Cooperation’, U.S.-China Economic and Security Review Commission Staff Report December 22, 2014

MANUFACTURING IN INDIA


INTRODUCTION
India’s economic growth since the liberalisation of the 1990s has been driven by the services industry. However, India’s large and youthful population needs jobs and expansion in manufacturing. This is essential for the country to maintain high rates of growth. The goal the Modi government has set is to make India break into the top 50 in the World Bank’s ease of business index ranking from the current 134th position. In an attempt to build India’s industrial base nationwide, Modi is pushing the Make in India campaign, designed to attract foreign investment by highlighting the ongoing changes.  “Make in India” will have to go quickly from being a statement of intent to real action on the ground.

  It should imply producing for India and for the world. Making only for India will convert it into a form of import substitution. Making for the world makes the system more efficient. On the other hand, people wonder whether making for the world is even meaningful in the changed world context. Making India the base for the production of goods and services for export is not a bad idea. But to convert this idea into reality, the Indian economy has to be much stronger. Markets across Indian towns and cities that are flooded with Chinese products, more so around festivals such as Deepavali, are grim reminders of how Made-in-China has come to dominate homes and offices. From furniture and gadgets to industrial equipment, India is importing almost all products from its neighbour, even yarn for saris. 

 Factors Leading to China’s Success in manufacturing are:

1. Preferential Government Policy
     Among developing countries, the openness of China’s trade and industrial policy are often cited as its comparative advantage. The manufacturing sector requires:-
B) coordination of the localization process and
C) the monitoring of technology transfer.[1] 

 More specifically, in the automotive and electronic sectors, the emphasis is on promotion of learning rather than innovation. To further develop these industries, the government needs to be more interventionist. Local governments such as Shanghai have been very successful in coordinating investments across firms in the automotive industry to ensure a smooth supplier network. To date, the Shanghai area is considered one of the most robust manufacturing centers for electronics and automotive parts.

The Chinese government has led investment in the manufacturing sector by giving preferential loans to targeted industries. In recent years, the government has promoted growth in the value added manufacturing industries such as electronics and automotive components.

Additionally, the ease of doing business in China is very important. Compared to other countries in the Asia-Pacific, the cost and time to start up and close a business are lower in China. Moreover, the costs and procedures involved in importing and exporting a standardized shipment of goods in China are less than countries in the region.

2. Foreign Investments
       
By welcoming foreign investment, China’s open-door policy has added power to the economic transformation. In 2005, China received $153 billion in foreign direct investment (US China Business Council). This foreign money has built factories, created jobs, linked China to international markets, and led to important transfers of technology. Through this strategy, multinationals have brought large sums of capital and senior talent to China, helping China develop its manufacturing arm without relying on local institutions. Joint venture firms have also been a huge boon for the Chinese manufacturing sector. These foreign-invested companies operate by employing local managers to teach management, production, and marketing skills to local employees.

3. Infrastructure Investment
  One of the most important success factors is China’s superior infrastructure. It is especially essential in manufacturing. To transport raw materials and finished products, good roads are needed. Sound facilities and a good system of power supply are required for high quality, uninterrupted production.
China invests heavily in maintaining its transport system. It makes enormous efforts to lower congestion levels on main railways. Additionally, China has built 25,000 km of four- to six-lane, access-controlled expressways in the past 10 years.

Having a stable power supply is very vital to manufacturing efficiency. Power outages can lead to loss of sales by forcing downtime or idle capacity on managers. Power disruptions waste material, damage equipment, add to maintenance and repair costs, thus increasing the overall cost of doing business in a country. In China, power outages happen on average every other week, which is considered low, compared to other developing countries. To prevent power shortages, China continues to invest in power generating structures. The Chinese government has paid close attention to investing in infrastructure such as roads and transportation systems, manufacturing machinery, and communications systems.

4. Human Capital
    In addition to its vast supply of cheap but skilled human capital, China has large numbers of foreign educated people coming from Silicon Valley and other centers of innovation. China currently has 1,731 universities and continues to build more universities and trade schools. In 2005, there were an estimated 3.4 million college graduates.[2] 

Lessons Learned from China’s Automotive Component Sector
• In capital intensive industries, government interventions such as preferential industrial and fiscal policies are needed to channel growth.
• Foreign direct investment is important in facilitating technology transfer and capital investments.
• Manufacturing sector requires good infrastructure such as transport system and power supply.
• Investment in tertiary education is vital in the promotion of hi-tech industries because human capital is the key in a firm’s expansion strategy.

Factors Leading to India’s Growth in Manufacturing

While there are certain similarities in India and China that encourage growth of the manufacturing sectors, there are key differences that can account for why China has been more successful in manufacturing than India. As mentioned in the section above, China has been successful in manufacturing because of preferential government policy, foreign investment, infrastructure investment, and human capital. Preferential government policy and human capital have also played a role in India’s recent growth in manufacturing, but other factors such as reliable suppliers, low cost of materials and labor, and a large domestic market have also contributed.

1. Preferential Government Policy

In order to encourage growth of the manufacturing sector the government has implemented reductions in import and customs duties. In the electronics sector the government has removed customs duty on raw materials and inputs for the manufacture of electronic components. In the automotive sector the government has reduced customs duties on raw materials and inputs for manufacture of automotive components by 20 – 15 percent (IBEF 2006). India has also developed Special Economic Zones (SEZ) that allowed for government, private or joint sector initiatives to develop business. The SEZs provide high quality infrastructure facilities and support services, besides allowing for the duty free import of capital goods and raw materials (IBEF 2006).

2.Human Capital

India has an abundance of skilled engineers and technical experts. The U.S. and Singapore are the only countries that outrank India in the availability of skilled-workforce. In addition, India’s employable skilled workforce is projected to grow for the next 20 years, but China’s skilled workforce started its decline in 2010. In 2003, India also had the lowest hourly labor costs among its major competitors at US$0.74. India’s competitors followed at the following rates: China US$0.90, Thailand US$1.20 and Mexico US$1.68 (IBEF 2006).[3] 

India has a well-developed technical and tertiary education infrastructure that produces over 500 PhDs, 200,000 engineers, 300,000 non-engineering postgraduates and 2,100,000 other graduates each year (IBEF 2006). Eight percent of the Indian population between the ages of 25 and 34 receives tertiary education compared to only 5% of the Chinese population in that same age cohort. High levels of education not only lead to engineering and technical capability, but also strong managerial capability.

3. Large Domestic Markets

India’s rising incomes and growing consumerism are the main factors aside from lower costs that make India appealing to foreign investment. As income rises, there is also an increase in domestic consumption. Between 2005 and 2006 domestic consumption was forecasted to increase by 8.7% (EIU 2006). While a large domestic market creates a good incentive for initial investment in India, companies need to realize that this is a limited source of growth and they need to be poised to export from India in order to truly expand.

4. Quality and Trade Standards

India’s adherence to quality and trade standards makes exporting from India a viable option. India manufacturing companies have quality management programs in place including ISO 14001, TS 16949 and TQM that make them export ready. Approximately 80 percent of automotive component manufacturers in India meet ISO 9000 quality standards. In addition they are WTO compliant for Trade Related Intellectual Property (TRIPS) (IBEF 2006). Companies who set-up operations from India need to take advantage of these opportunities to expand India’s manufacturing sector to serve international markets.


Factors Slowing India’s Growth in Manufacturing

1. Lower Levels of Foreign Investment than China
Since the beginning of the 1990s; India has improved its manufacturing environment. In the first half of the 1990’s, manufacturing exports grew 30% higher than the world export market, but during this time China’s exports grew at a rate of 57% higher than the world market. One main factor that contributed to China’s higher rates of growth was that during that time China averaged US$40 billion in foreign investment annually while India averaged foreign investment was only US$3 billion during the same period of time. 

Reasons For Receiving Lower Investment:

(i) According to the World Bank 2004 Doing Business in India report, it is harder to do business in India than China. One supporting example of this fact is that in 2004 it took 89 days to start a business in India, but it only took 41 days to start a business in China.

(ii) India also has stricter labour laws, which makes it much harder to hire and especially fire workers. This is also cited as an impediment to growth by businesses. Senior management at Indian firms also spends more time addressing regulatory issues than management of Chinese firms (11.9% in India vs. 7.8% in China) (World Bank 2004). The government officials in India responsible for overseeing various regulations, including labour and tax provisions, have more discretion over what rules and regulations they enforce. This leads to higher levels of corruption than other developing countries.

2. Lack of Infrastructure

 Infrastructure is often cited as the biggest impediment to growth of the manufacturing sector in India. Gains made through low labour costs are often lost through bottlenecks in power supply, telecommunication, and transportation.

Speedy completion of projects requires attention at the micro and at the policy levels. While every effort should be made to remove administrative bottlenecks, issues relating to the environment and land acquisition also need attention. The concerns relating to environment and land acquisition are genuine. They cannot be wished away. We need to work out an acceptable compromise between the compulsions of growth and the concerns relating to environment and land acquisition. A process of consensus building needs to be initiated.
As a result, the rapidly growing bilateral trade between the two neighbours is tilting heavily in China’s favour, at a rate that India has termed unsustainable. The quality of trade also goes against India. India exports raw materials such as iron ore but imports manufactured goods. A fallout of which is dumping of products on big markets like India.  To protect domestic manufacturers, India has been imposing an anti-dumping duty on 159 products — ranging from chemicals, petrochemicals, pharmaceutical, steel, fibres and consumer goods — imported from China since 1992.The spurt in factory imports from China has coincided with a sharp slide in India’s manufacturing sector despite the UPA government’s efforts to push the sector. Manufacturing output grew barely 1 per cent in 2012-13. In 2013-14, factory output contracted (-) 0.7 per cent. The share of the jobs-creating sector in the GDP has declined to 14.9 per cent in 2013-14 from the peak level of 16.2 per cent in 2009-10.

Recommendations for India’s Manufacturing Sector Given China’s Success

Recommendation 1: Increase FDI Inflows

Higher FDI will allow India to further develop its infrastructure, which will lead to business development. To increase FDI, India needs to further liberalize FDI regulation. The one cultural factor that makes that more difficult for India than China is Indian nationalism. Certain government parties are resistant to multinational investment in India. Unless there is an acceptance in the role foreign investment can play in making India stronger, this will continue to be a hurdle. Another main factor in increasing FDI flows in making it easier to enter and exit the Indian market. Until these factors are addressed foreign companies will continue to choose other destinations for their investment like China, Brazil, or Malaysia.

Recommendation 2: Improve Infrastructure

Making a serious investment infrastructure will help business grow and attract more investment to India as well. While the Indian government is taking some steps towards developing infrastructure through the Special Economic Zones, in order to truly be competitive they need to allow for better access to power supply and transportation. Following China’s example of developing preferential treatment for access to power supply and transportation would lead to more investment in manufacturing.

Reforms must be part of a continuing agenda. The basic principle guiding reforms must be to create a competitive environment with a stress on efficiency.

What industrialists have to say:

 Havells is one of several Indian companies to have shifted production or sourcing from China, as costs climb in the Middle Kingdom. Consumer appliances company Godrej, mobile-phone maker Micromax, auto-parts maker Bosch and stationery manufacturer ITC have all started expanding or exploring manufacturing operations in India. Chinese companies, too, are forming joint ventures with Indian partners to set up production bases in the country. Business Today spoke to 16 companies that have already shifted part of their production from China to India and a few more which said they were considering a similar move to take advantage of lower Indian labour costs and favourable currency movements. "Chinese costs are going up. This is a great time to move production from China to India," says Adi Godrej, Chairman of the Godrej Group, which has shifted air conditioner and washing machine production to India. He thinks the trend will continue for 20 years. "The earlier India leverages this trend, the better off we will be. If we don't leverage it soon, other countries will do it better." Other countries, in fact, are already benefiting as China begins to lose the competitive advantage that lured companies from across the world. An estimated 100 million jobs will move out of China over the next few years in labour-intensive sectors, says Ajay Shankar, Member Secretary of India's National Manufacturing Competitiveness Council. Many US, European and Japanese companies are shifting production from China to lower-cost locations such as Southeast Asia. A boom in shale gas output in the US has prompted many companies to move production back to America.
But the point which needs keeping in mind is the continued economic weakness in Europe and shift away from consumer-led growth in the US further complicating the export ambitions of emerging economies. It will be much more difficult and challenging for India to grow its manufacturing sector by relying exclusively on exports, the way China did. India might have to develop its own growth model, using a mix of manufacturing for exports as well as the domestic market. Through greater foreign direct investment, India can build upon on what is already a significant manufacturing footprint in many industries.

Infrastructure and regulatory obstacles aside, India features nearly all of the key ingredients necessary to transform its economy into a manufacturing juggernaut: a demographic dividend, attractive domestic market, comparative advantage in shipping and labour costs, an inexpensive currency relative to the dollar, and low political risk. In many ways the coming decade will be crucial for India as growth is the answer to many of its socio-economic problems.