Can India Step up to the Plate? - Part II

Background

A new battle has just begun. It is for supremacy in the post-COVID-19 world! The question is which country is going to be out of the gate first and lead the race to economic recovery, as most of the world is still reeling from the ravages of the coronavirus. Based on the evidence so far, it looks like that country is going to be China, where COVID-19 had first started and first came under control.

However, many countries, whose economies have been decimated in the past few months are now planning to reform their economies by disentangling themselves from China, given the lessons learned. But that is not going to be easy because many of their supply-chains are already locked into multi-year contracts with Chinese suppliers, and they do not have adequate manufacturing capacities and resources in their local regions, or at their likely new partners of choice, such as India. 

But China is not sitting idle. Like a good chess-player, it is already sensing these long term moves by some of the largest multinational companies in the world and trying to stay steps ahead. It has done its due diligence and is now offering incentives to many of these companies to stay back in China, while it is also trying to acquire or invest in suppliers outside China that these companies are likely to target. 

China vs. India

Today, China is ahead of India in economic power, military power and overall technological prowess. It likes to be considered as a superpower while India is often labeled as a poor developing country. China has the second-largest economy in the world (after the US) but also the fastest-growing economy. In comparison, India has the fifth-largest economy and it recently suffered a substantial downgrade in its growth projection by the IMF, due to the stress in its non-bank financial sector, decline in credit growth, cooling private consumptions and slowing industrial activity.

In the 1990s, China was considered a poorer country than India with much lower GDP per capita, a huge population and widespread poverty. But after 25 years later, Chinese per capita GDP is now roughly 5 times that of India. A true economic miracle! 

I have been to mainland China (and Hong Kong) about 8-10 times during those years to meet with business leaders of some of the top Chinese companies and some of the local Chinese officials and was awestruck by the rapid pace of advancement every time I returned to China. In the mid-1990s, when I first visited Beijing (still known as Peking outside China), few years after the Tiananmen Square incident, it was filled with slums on both sides of the streets and littered with smelly garbage from overflowing trash bins in every few city blocks. At that time, bicycles were the primary mode of transportation in China since people could not afford to buy cars. 

A few years later, I also visited Shenzhen near the border of China and Hong Kong, a bustling business capital. Shenzhen was already approved as a Special Economic Zone by the Chinese Government but still filled with lush green fields, while they were actively seeking foreign investments there. In my conversations with some of the senior Chinese officials and party leaders, it became apparent that China had high hopes for Shenzhen to attract foreign capital because of its proximity to Hong Kong. 

In the next few trips, I saw the slums of Beijing disappearing slowly and steadily, and getting replaced by tall skyscrapers with beautiful and distinct architectures, and many new highways being built. Soon after that came the Beijing Olympics, and China put on a festive hat and made itself a grand showcase displaying its merchandise and services to the visitors from all around the world.

At that time, China also announced that it began construction of its first high-speed “bullet” train connecting Beijing and Shanghai. The rest was history!

China achieved all this progress through careful planning and execution, inviting foreign investments from all over the world, growing labor-intensive industries to attract foreign businesses looking for cheap labor, educating its workforce by teaching English to its next-generation as a mandatory language, and abolishing corruption. Throughout this period, their discipline and work-ethics were second to none. 

China also accomplished its success through a large government stimulus program (as a share of its GDP) for its citizens, large R&D investments in leading-edge technologies, and an effective infrastructure-building program, followed by the Belt and Road initiative.

At the same time, I also happened to be visiting Africa and noticing brand new “Thank You, China” signs on billboards, roadways, tollbooths, shopping malls, factories and mines in countries like Kenya and Tanzania. Some of my customers in those countries mentioned to me during our conversations, how grateful they were to China for the money and human capital it was bringing in to modernize their countries.

Despite such initiatives and progress, China today is at its weakest moment in more than a decade. Its image has become tainted on the world stage due to its actions or the lack thereof. In my opinion, it has lost the trust of many countries including the USA, UK, Australia, France and Canada, and has been blamed for IP theft, human rights violation, and the COVID-19 crisis. 

According to many western observers today, China also does not play fair. Its closest allies are two terrorist countries: Pakistan and North Korea, followed by Somalia and Iran. With a trade war growing ever more intense between the US and China, China is no longer seen as a reliable supply-chain partner. 

Lately, in a pre-calculated move, China seems to have started ratcheting up the geopolitical tensions with India creating not only a power struggle but also distractions for the Indian leaders, in order to further weaken and destabilize India, one of its likely rivals in the ensuing race to become an economic superpower in the new era.

So, what is India to do under these circumstances? India, unlike China, is still rising from the ashes of the British empire - with a divided country filled with secularism, corruption, bureaucracy, poverty, malnutrition and hunger. Also unlike the Chinese, instead of bringing the country together as one India, many of its past leaders have turned a blind eye to the vast masses in various communities that have been left behind, robbing them of their pride and dignity, their livelihood, and their sense of belonging and empowerment, during the country’s march to prosperity.

The good news for India is that it is one of the fastest-growing economies in the world today, but the bad news is that at least 1 out of every 5 Indians still lives below the poverty line with no hopes and dreams that their lives will ever get better.  With the diversity of India and a political system which is often in disarray, it is very unlikely that it would be possible for India to direct its economy the way China does, nor will it ever have the control and autonomy over the allocation of all its resources, a formula behind China's great economic success. 

China brings a unique discipline to its economic planning - resulting from its single-party political system, the competence of its state institutions, and its single culture and authoritarian core value system, all synchronized in total coherence (marching in unison to the same tune) with no room for diversity or protests.  

However, going forward, one of China's biggest challenges might pose to be an advantage for India. In terms of demographics, the elderly are vastly outnumbering the young people in China, at a time when the number of young people in India is rapidly increasing which can lead to more productivity, creativity, efficiency, prolific advancement and rapid growth in the years ahead. One of India’s biggest advantages tomorrow will be the large scale and reach of its younger generations in India and worldwide.

Recommendations

As I mentioned in Part I of this series, India today is at the crossroads. It is a highly strategic and pivotal moment and transformative time in its history because it now has an “opportunity of a lifetime” to become an economic superpower by leveraging the current economic crisis worldwide - through meticulous planning, partnership and execution. 

In terms of recommendations, I have no single magic bullet, but here are my top-20 tips to leverage this opportunity to reinvent India:

1. Create a United India with Strong Leadership at the Top - First and foremost, India must unite the country under a common cause. Also, the leader at the top must lead the leaders, not through conflicts but through value-add. Leaders in India must know how to lead and be authentic and also be visionaries - not just manage day to day political crisis. Any entrenched bias on the part of a leader would only create barriers to success. These leaders need to work collaboratively and stop all the vicious in-fighting, bickering, acrimonious behaviors, and crippling political sabotage, that is detrimental to the country’s interests. It is derailing India from its ultimate objectives and helping its competitors like China. 

2. Invest in Modern Infrastructure, Transports and Logistics (at a breakneck pace) – Build strong infrastructure to support businesses, including more highways, bridges, and tunnels; connect all major airports to the nearest cities and nerve-centers of the country by high-speed rails (as China has done with its bullet trains to connect its major cities); build “Smart Cities” with cameras and sensors, IoT and 5G infrastructure, and modernize the major airports, so it is easier for business people and foreigners to travel and do business in India.

3. Open New Large-Scale Manufacturing and Testing Hubs – Create highly integrated modern factories and clean rooms with “Smart Equipment” and automation to address worldwide demands for low-cost manufacturing of systems, chips, embedded processors, smartphones, and pharmaceuticals in India. 

4. Promote Symbiotic and Efficient Supply-Chain and Distribution Networks - Today one can walk into one of the industrial malls in Guangzhou, China with a prototype of a hardware product and walk out in minutes with a complete list of necessary molds, hardware and other ancillary parts required from various third-parties in China, for a full production run with cost and time estimates. India needs to develop such capabilities to compete at a world-class level to attract prospective foreign businesses seeking vendor-diversity for their products and services.

5. Drive Urbanization and Domestic Consumption – Urbanization is a driver of growth. But today’s reality in India is that 2 out of every 3 Indians still live in villages. As a part of re-opening, move people from farm-lands to cities which would help alleviate India’s low agricultural productivity, since the same land would then be farmed by fewer workers. When the new urban residents get jobs in labor-intensive manufacturing in cities and urban centers, incomes would rise quickly which would lead to more consumer spending and more economic growth. India also needs to couple urbanization with a drive towards absorbing some of the manufacturing jobs that are leaving China now, because of the trade war and the coronavirus outbreak.

6. Turbo-Charge the Economy by Helping SMBs - Provide special incentives to under-capitalized small to medium-sized businesses (SMBs) that form the backbone of the economy. Give them access to cheap capital and energy with governmental subsidies and support, by investing in alternative energy and solar farms. As these SMBs grow, they will hire more workers which will boost the country’s economy.

7. Upskill the Workforce – Many Indian workers today (a huge part of the population) are stuck in low-skill or no-skilled jobs as janitors, cleaning ladies, housemaids, “rickshaw-wallas”, porters etc. Teach basic crafts and promote computer literacy to upskill them to a minimum skill level, so they can earn a decent living.

8. Provide Large Economic Stimulus - Revive and accelerate Private Sector Investments and Spending through monetary stimulus. Indian industries will invest more when the demand for goods and services increases. Also, demands will increase only when wages increase, or there is money in the hands of people through an economic stimulus.

9. Create an Economic Advisory Council for India - Create an economic advisory council of some of the top Indian-born business leaders abroad who are highly experienced in creating market tractions and gaining competitive advantage from a business perspective, and sustaining their company’s leadership in the worldwide market.

10. Seek More Foreign Investments - Aggressively pursue more foreign investments. Send a clear signal to India’s friends and allies that a “new revitalized India” has now opened for business and is willing to make deals.

11. Reduce Negative Trade balance with China (India’s second-largest trading partner) – India needs to drastically reduce its heavy dependence on low-cost Chinese products and services in key verticals such as Pharma, Telecom, and Consumer Electronics. 

12. Control IP Theft - Stop Chinese companies in India from stealing Indian IPs and Indian companies and businesses (including top IT and Management Consulting Firms) from selling out to China, or sharing their IP with their Chinese partners under lucrative contracts.

13. Prevent and Punish Cyber-Terrorism - Stop cyber-terrorism, domestic and otherwise from countries like China, Pakistan, North Korea, Iran, and parts of former Soviet-Union.

14. Root Out Corruption – Strong-handedly remove all corruption, red tapes, black money, and bribery at all levels (as exemplified by Singapore and by China). Use modern technologies to police the police, if needed. Enforce strict law and order.

15. Reduce Inequality / Invest in Indians (including women and elderly) – Get rid of inequality and discrimination at all levels and reduce unemployment.

16. Eradicate Poverty – Signs of poverty, malnourishment and hunger are just about everywhere in India. To make things worse, many of the poverty-stricken slum-dwellers live in close quarters under the disproportionate impact of severe air and water pollution (and no running water), where social distancing for COVID-19 is not possible. 

17. Invest in High-Tech Military Hardware and High-Precision Defense Systems (including Intelligent Stealth Drones for air combats and surveillance) - Stop continued encroachments and aggression by China and its ally Pakistan in northern India.

18. Leverage Allies and Neighbors - Create stronger ties with regional leaders like Japan, Israel and Australia which are also somewhat at odds with China. Improve relationships with neighboring countries like Bangladesh, Nepal and Sri Lanka and come up with a joint initiative to compete with the Chinese Belt and Road proposal to integrate supply-chains in India and to secure the Indian Ocean.

19. Provide Free Internet Access to the Disadvantaged, Marginalized and Deprived Communities (even in the last mile) - Create a level playing field and give everyone a voice.

20. Invest in Future Leaders / Educate and Nurture India’s Children – Child poverty including malnutrition and hunger is a major crisis in India, unlike many developed countries in the world. If India wants to rise up to the level of a developed country, it needs to address this problem urgently. After all, Children are the future of the nation. No child in India should ever go to sleep hungry. Make school education free; provide free school-lunch programs and free after-school programs. Also, provide education credits and loans to students interested in pursuing higher education, STEM research etc. and increase investments in R&D. Aim to ensure that we leave India’s children and its children’s children with a future far better than ours.

Conclusion

No doubt, all this is easier said than done and will take time and resources. However, this opportunity for India may not come again in the next 100 years, and China has already united itself through its one-party system and iron-fist execution of its political powers to fulfill its ambitions of world dominance in the future. 

India today needs to forge ahead rapidly with massive structural reforms and execute swiftly like a business with a sense of urgency. It must rise to the occasion to defend itself against China and its rogue allies, and come out ahead in the post-COVID-19 world. 

India has the talents to achieve this - driven by a large well-educated young workforce. All that is needed for India is firm resolve and dogged determination to win.

References

1. “China and India, 2025: A Comparative Assessment”, Charles Wolf, Jr., et. al., August 2011, RAND Corporation  

2. “Coronavirus: Can India Replace China as World’s Factory?”, Nikhil Inamdar, May 2020, BBC News

3. “India’s Ascent: Five Opportunities for Growth and Transformation”, Noshir Kaka and Anu Madgavkar, August 2016, McKinsey Report 

4. “Future of India: The Winning Leap”, April 2014, PricewaterhouseCoopers (PWC)

5. “3 Reasons India Isn’t the Next China”, Geoffrey Garrett, December 2015, Wharton Magazine

6. “India’s New Opportunity – 2020”, February 2003, All India Management Association and the Boston Consulting Group

7. “China Is Foolish to Make an Enemy of India”, Mihir Sharma, June 2020, Bloomberg Opinion

8. “Three Opportunities for India”, Marten Van Den Berg, February 2020, The Week

9. “After COVID–19: Manufacturing India’s New Economic Potential”, Akshobh Giridharadas and Vaman Desai, April 2020, The Diplomat

10. “India Can Defeat China in a War”, Michael Peck, May 2020, The National Interest

11. “Why India Can’t be the Next China and Shouldn’t Try”. Ruchir Sharma, April 2019, Economic Times

12. “Why China Moved Ahead of India and What Can We Learn from Our Neighbor”, Prabhash Dutta, October 2019, India Today