OPINION: Can India replace China as the manufacturing and tech hub

PUBLISHED: Sat, 01 Aug 2020 21:21:02 GMT

By Anu Shah

China is facing an unprecedented global backlash currently and many are advocating to look at India as its alternative.India has sensed an opportunity and is keen to make inroads to a space China is likely to vacate.

The GDP/capita of India is $2000,similar to China in 2005. So will India replace China? One needs to understand fundamentals key to manufacturing to predict the outcome.

India has 1.2 billion people, and 65% of the population is below 35 years of age. English also seems to be an advantage of India. However, the literacy rate of India in 2019 is only 69% v/s 77% in China in 2005 and 96.8% in 2019. While this loophole makes Indian human resources cheaper it also reflects the lack of
skilled or educated labour in the market.
In 1990, the economic level of India and China were almost the same. However, in the wake of the 1989 Tiananmen Square crackdown in China, the EU imposed an arms embargo on China, followed by US economic sanctions,absteniations from the international banks, suspension of export licences etc.China hence called a truce with Taiwan, Japan, US, and made allies by getting in trade agreements with them.
China is aware that in case of a recap of previous years its maritime lifeline can easily be cut off. So in 2001, China strived to join WTO and fostered deeper international trade ties. Which in effect helped China gain more volume ( > US and equal to EU) in trade.
India has a better geo-political standing however it has not fully harnessed these relationships for the political (including resolving issues with Pakistan) or economic advancement. India has joined WTO since its foundation, but even now its total trade volume is less than Hong Kong.
Post 1990 China dedicated its resources to the low skilled manufacturing and ousted competitors such as Africa, Southeast Asia, Latin America, and Eastern Europe.In the early 21st century US, EU and Japan fought each other in the upscale market while China became a leader for primary and ordinary products.
China has now reevaluated its strategy and is eyeing the upscale high tech market.The Chinese government has launched “Made in China 2025,” a state-led industrial policy that seeks to make China dominant in global high-tech. The program aims to use government subsidies, mobilize state-owned enterprises, and pursue intellectual property acquisition to catch up with—and surpass—Western technology across industries. This actually leaves room for India to undertake the industrial transfer from
China. India can certainly take the baton from China in the low cost, low skilled manufacturing space with least effort.
Lastly, China is 3 times the size of India and ranks first or at the forefront of the world in many resources.
Example : Extensive deposits of coal, oil and gas. Yet with increased demands China imported 12% of the global coal and 20% of global oil imports in 2019. India is not abundant in coal, oil or gas. India imports 80% of its oil from OPEC nations and is unlikely to be self-sufficient e anytime soon.
From this it seems like Manufacturing or economic growth of India would come at a higher cost than that of China, making it less competitive in pricing.
All in all, it looks like with a lack of a proper internal policy infrastructure and stronger geopolitical play, India will only settle to be a low cost manufacturing hub to replace China.

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