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You have to be living under a rock if you haven’t noticed the global backlash against China.
China holds a position of producing a majority of the world’s products and probably will continue to do so in the near future. The industrial giant grew in a rapid and very unsustainable manner over the last few decades becoming a hub for outsourced manufacturing – from making toys and clothes to medical equipment and electronics. China’s aggressive economic growth and unfair trade practices coupled with diplomatic tensions (surrounding the pandemic and border disputes) have given life to the Quadrilateral Security Dialogue – a multilateral group comprising India, Japan and USA and Australia. The four nations resumed dialogue after November 2017 in an attempt to temper Chinese dominance in the Indo-pacific region. The dialogue has raised many questions, the most crucial being – who will now take the role of the ‘world factory’?
Can India be the next China?
No. At least not in the near future…
While we have heard rhetoric that often revolves around how India has a young workforce while China has an ageing population or how the aggressive attributes of China are going to lead to its downfall and create room for new hubs of manufacturing . I beg you to open your mind past the rhetoric and consider some evident issues that won’t allow India to ‘replace’ China in the global market.
All it takes to break down this rhetoric is a look at employment and GDP statistics through the primary, secondary and tertiary sectors.
I’m not saying that demographic figures aren’t important, of course they are. But simply basing the fact that India can become the next manufacturing hub simply because of a younger population is simply absurd. Let’s look at the Indian agricultural industry for example – while over 42% of the country’s man power is employed in the primary sector, it only contributes to approximately 17% of the GDP, making it the most populated and least efficient wing of the Indian economy. So if demographics and economic output was proportional, the Indian primary sector would be the pillar of our economy.
Unlike most economic giants, India skipped industrialisation trying to build an economy that was driven by the tertiary sector, heavily reliant on a digital infrastructure and not a physical one. It’s hard to deny that the focus on the tertiary sector was a success looking at how it has formed the backbone of the Indian economy. While it only employs 32% of the country’s population it contributes to over 54% of the GDP. But a country that has a literacy rate of less than 78% and an inefficient primary sector, cannot simply rely on one wing of the economy. India needs to increase investment in manufacturing.
What can India do now?
Increasing investment and innovation would be an ideal first step…
Dynamic efficiency, a term any high school Economics student would know (and a concept China mastered) holds the key to India’s reign over global manufacturing. The term in this context would translate to high investment in innovation and technology in the short run that would allow industries to manufacture products at an efficient and economical manner in the long run. Chinese growth was and continues to be driven by some of the world’s highest investment rates, which has allowed the creation of the manufacturing muscle China proudly owns. While India only invests about 30% of its GDP into infrastructure, China has consistently invested 50%.
China is continuing to innovate and invest, increasing the use of Artificial Intelligence (AI) in manufacturing. The Chinese State Council introduced an Artificial Intelligence Development Plan aiming to build a $150 billion national AI industry in the near future. Part of this plan involves integrating AI technology in China’s factories . The application of AI in Chinese factories aims to target production R&D as well as the production process including: manufacturing, product development, logistics, monitoring and environmental safety. Companies like Shanghai STEP have created industrial robots along with control systems and software for industries that have effectively transformed welding, packaging, construction, and machining. Even logistics technologies are being powered by AI, to bring productive efficiency in Chinese factories to a whole new level. The use of AI in Chinese factors holds great potential, taking away the threat posed by the country’s ageing population. While the Indian economy is still taking baby steps towards an industrial economy, the Chinese manufacturing sector is already evolving to suit the needs of the future. It is peremptory that India dedicate their efforts to increasing infrastructure if they are to compete in the global manufacturing market.
What role do politics play?
An important one for sure…
While the Indian democratic system has its many positives, it also has its own limitations, especially when it comes to economic reform. When working on infrastructural projects such as construction of power plants, the Chinese government can simply acquire land and compensate the affected people. Taking on similar projects in India would have several barriers because of the limitations of central control on states, political procedure and legal disputes. For example if a decision to contract a high speed railway line passes in the Lok Sabha, the process maybe delayed and blocked by the Rajya Sabha. Let’s assume that the project is approved in both houses, issues such as raising government revenue or displacement of minorities more often than not hinders the process. The Indian democracy hence has to fight many battles (one at a time) as part of this infrastructure politics.
‘It is impossible to make one generation better off without making any other generation worse off.’
This is a basic rule for an economy that needs to achieve dynamic efficiency. It is going to take a lot of planning, spending and sacrifice if India is going to even be a contender for becoming the world’s factory. While political and economic reform of such extent is too much to ask for, it is the need of the hour. The country has abundant raw material and a mammoth working population, but falls short on investments and planning. India will have to completely shift its economic structure, which will have repercussions that the Indian society and economy may not be prepared to handle.
Karantaj Singh finished his undergraduate in History and International Relations. He is now pursuing a minor in Media Studies and Politics during his time at the Ashoka Scholars Programme. He enjoys gaming and comics in his free time.
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