Show Us The Money

 

Show Us The Money

Which countries, amongst the serious contenders, will get Modi’s investment motor running in 2015?  It’s probably a toss-up between Japan and China, rather than the US, despite the nuanced upgrading of India in the US scheme of things. Pledges of over $ 55 billion have been made by the former two already. The US has offered a symbolic $ 4 billion and a bushel-full of weighty promises.

The Indo-American relationship has better atmospherics but is still processing the evolving geopolitics. The follow- through in common- or-garden business, particularly manufacturing, has to come company to company, and will involve extensive negotiation.

Likewise, the bilateral engagement, in order to bear fruit, in the now promising military manufacturing and the nuclear power sectors, though both are highly privatised too, must be reinforced in these last two years of the Obama era, and into the new administration.

Japanese Prime Minister Shinzo Abe has recently won snap elections held as a perceived referendum on his policies. And Japan has already made the most by way of infrastructure/manufacturing investments in India, followed, unsung, by South Korea. This is most visible in the Delhi Metro and in the Delhi-Mumbai Industrial Corridor. If Japan now puts in a large dollop of the $35 billion it has promised, it will quickly go to the top of the FDI charts.

China has trillions in investible reserves, and could, of course, overtake Japan quite easily. The compelling difference in basic manufacturing wage levels could be  persuasive, Indian hourly wages are now at 0.92 cents an hour, compared to China’s $3.52, according to Boston Consulting Group.  Other countries, such as Vietnam and Indonesia also offer low wages, but they do not have India’s size, domestic market, deep labour force, or sustainable rate of growth. All this has made China reclassify its dealings with India under the ‘major- country relations’ tag.

And if enough is done, partially with long-term funds invested by Japan and China, to turn Indian industrial corridors to support international manufacturing, then India could indeed become a manufacturing hub to reckon with.

This would involve all that is partially completed and very much on the anvil: super highways, airports, cargo-handling, fast trains, smart cities, cyber backbones, in addition to the stable and ample provision of electricity, water, land, conducive laws, low taxes etc.

Gujarat, under Modi, managed to ramp up manufacturing over the last 13 years, till it accounts for 28% of its GDP, against the national average of just 13%. It has proved to be a major driver of worthy employment and many lateral economic benefits. And since the same man is in charge at the Centre now, the chances of this happening on a more widespread basis are very good.

India is likely to see at least a 7% growth rate in 2015, per the revised calculation norms of our statisticians, along with lower interest rates, lower inflation still and reviving business and industry.

China and Japan know they could very well produce some items cheaper in India. And if these manufactured goods are carefully selected so that they are largely consumed here,  it is even better.

A key area could be in solar power, with India hungry for alternative energy sources. It is also not inconceivable, though we have generally turned to Russia, the US and Israel for this, that both China and Japan could get involved in the manufacture of military and railway equipment as well.

There are also compelling economic reasons of their own for China and Japan to come to India to manufacture. Japan needs to grow via third country investments/ventures because its domestic situation is mired in stagflation. China has a ‘cooling’ and slowing economy after 30 years of high growth. It now suffers from inadequate domestic demand, drastically slowed exports to the US and Europe, and much idle infrastructure building and manufacturing capacity/know-how.

India offers a high capacity to absorb opportunity to all comers, and has plenty of natural resources including thorium, iron ore, bauxite, coal and so on, the value-addition to which, could make things interesting.   

The most immediate benefit of India drawing closer to America and vice versa, is that it exerts a certain level of security pressure in its context with China. We won’t be so frequently bullied and the border problems may well be catalysed into a solution.

But, US policy, similar to Modi’s foreign policy initiatives, strives to separate geopolitical adjustments from commerce. Japan and China can, and will, simultaneously contribute, for their mutual benefit, and ours, in India.  

US bilateral trade with China today stands at $ 500 billion. The India-China figure is at some 12% of it and this too is highly skewed in China’s favour. China has invested only $ 1 billion in FDI so far. This needs to rise exponentially if China would be benefitted from a quarter century of India’s development going forward.  

 (811 words)

February 2^nd, 2015
Gautam Mukherjee