In the major trade standoff between China and the US, US President Donald Trump is steadfast in his approach of raising tariffs and using other policies for pressurizing China. On his part, China’s President Xi Jinping has indicated that China will not give in to pressure from the US. “We are now embarking on a new Long March, and we must start all over again,” Xi stated recently.
Even if solutions emerge, the problem will keep festering. Thus major international firms that invest in China are examining options to spread their risks and shift some of their existing and new investments to other countries.
Several persons have written about the possibility of India benefiting through increasing exports to the US and a shift of foreign direct investment (FDI) to India. However, to substantively benefit from this situation, India requires a strategic approach to convert this opportunity into a major gain. India needs to focus on becoming a new powerhouse as a global hub for exports, with a major positive impact on competitiveness and job creation.
China’s merchandise exports are almost the same as India’s GDP. Even a 10% shift from Chinese exports to Indian exports would imply over 75% increase in Indian exports. India needs to develop a strategy and vision for itself and the world to make this a reality. Its recent tepid export performance suggests that investment from large global companies is the transformative path for India, provided certain key points are kept in mind.
Moving Up The Value Chain
First, India is only one among the alternative countries being considered by major international companies as an investment destination. Indonesia, Malaysia, Mexico, Thailand, and Vietnam all have relatively easier access to large markets.
Second, India’s domestic market is large, but the focus of most large firms with major international brands and global presence is on exports and maintaining their global value chains (GVCs). China’s 2018 exports to the US at $560 billion were nearly double of India’s total exports. According to the United Nations Conference on Trade and Development (Unctad), multinational companies account for 80% of GVCs.
Third, India’s aspirations to double its exports and create jobs depend on its success to link up effectively with GVCs. As the seventh largest global economy and the 20th largest goods exporter, India is not yet a significant presence in GVCs.