India As The 'Plus One' To China

As the world looks beyond China, India can emerge as an alternative only if we are capable of competing globally in terms of cost, quality, customer service, capital productivity, innovations and branding

- Sanjiv Mehta

In the last several decades, many countries that transitioned from the middle-income to the high-income status benefited from either joining the large European market or being endowed with natural resources like oil and gas. There are notable exceptions, like South Korea, Taiwan and Israel, who have avoided the middle-income trap through manufacturing backed by R&D and innovations. Some countries used commodity exports or manufacturing and did well for some time, but eventually floundered. In this backdrop, India will have to create its own path to prosperity, where manufacturing will play a key role. Still, it will have to be a multi-dimensional story, with growth being inclusive and sustainable. We will have to go up the value chain based on cutting-edge innovations but will at the same time also need labour-intensive industries to employ our youth gainfully.

Disruptions to global supply chains owing to geopolitics and Covid have made countries and businesses adopt the 'China-plus-one' strategy, that is, look for alternatives to the Asian giant. However, India will not be the only player vying to be the 'plus one' to China. To be a big player in manufacturing, we must be able to compete globally in terms of cost, quality, customer service, capital productivity, innovations and branding.

The government has taken several steps to improve the cost competitiveness of Indian industry. These include huge investments in physical and digital public infrastructure, launching production-linked incentive (PLI) schemes and the Goods and Services Tax (GST) regime, and reducing corporate tax rates. The areas where India needs to put in more work to achieve competitiveness vis-à-vis its peers are the costs of logistics and capital - these need to be reduced by 300-400 basis points each.