By: Hari Sud
June 17, 2006
expressed here are author’s own and not of this website. Full disclaimer
is at the bottom.
It is true that the West is shopping for a nation with skilled,
educated and plentiful manpower to satisfy its manufacturing appetite in
next 10 to 20 years. Past twenty years, China has dominated consumer goods
manufacturing for the West. Next twenty are to be dominated by India and
China, with India getting the bigger slice. From business point of view,
it is suicidal to have one supplier, one manufacturer or one foreign
nation to supply most of your manufactured products. It is not a good
business practice. Corporations in their home countries always discourage
it. What if, a catastrophe strikes the supplier nation? What if, war in
the neighborhood prevents supplies from getting thru? What if, policies
change and the two nations pick up a fight, preventing orderly conduct of
commerce? All these do not speak well of one nation monopoly over the
supply chain. Well, the West has made that mistake. China domination of
their supply chain has to end. It is after 20 years and over $700 Billion
investment later, they have concluded that an alternative-manufacturing
place is to be developed. The forgoing will keep China’s future ambitions
in check. An alternative will be found. The choice is now falling on
India. The latter, has equally smart & well-versed labor force,
well-established BPO & IT base and has strong legal & financial
institutions. All these benefits put India ahead of China. To top it all,
Indians speak and write English as well as the West does, hence choice of
India is a foregone conclusion. President Clinton reached these
conclusions during his last two years in the Office; hence he started to
smile at India. This followed long roundtables with US in Talbot-Jaswant
discussions (very similar to Kissinger-Chou discussions) to hammer out
political and ideological differences. The net outcome of these
discussions was that US started to appreciate India’s position on
economic, military and world affairs. From India point of view, India
needed money, and lots of it, to reach 10% growth target. West was willing
to invest, provided both sides showed some movement away from the
previously held political and ideological positions. Indian masses also
understood these realities and elected right wing government's) in last
eight years with one goal – achieve high economic growth. US initially
moved slow but sure footed, with Clinton visit to India in 2000 and
subsequent removal of host of restrictions on India. The final movement on
both sides witnessed the historic Indo-US Nuclear deal in March of 2006.
In past five years, more and more investment has started to pour in, which
has lifted Indian economy from measly 5% growth to 8% (9.3% last quarter).
Still investment on the scale being made in China is needed. The
aforementioned deal is a signal to the private investors that things have
changed in Indo-US relations. This has also followed with Western media’s
change of heart. They started to admire India’s progress. Now the die is
cast for India to receive huge investments and become the primary source
of manufactured goods for the world.
Why did it Took so long and what was the Hold-up?
India’s past as a nation, is not very admirable. India tied up with the
Soviets and lost heavily. Chinese jettisoned the Soviets in 1971 and were
big gainers. US favored Chinese as opposed to the Indians, in-spite of
Chinese having killed 29,000 US servicemen in Korea. These memories were
still fresh in the minds of Americans, when Henry Kissinger was making
deals with Mao Tse Tung & Chou En Lai. When financial & political deal was
struck in Peking in 1973, American businesses welcomed it. China’s gains
started in 1982. It took roughly ten years from 1973 to 1982 and lots of
American advice to make all the structural and financial changes to their
system before money came pouring in into China. I would imagine similar or
lesser time needed to make all the structural changes in India before
money comes pouring in a big way. In past three years India has taken
lesser harder attitude towards US (e.g. Afghanistan, Iraq, Iran). In
return US have made three important changes into its thinking process.
First the political discussions of 1999-2000 although inconclusive have
set the stage for better future relationship management between US and
India. Second, a signal to the private investor has been given to begin
investment activities. The latter has resulted in study-increased flow of
capital into India. Third and most important is the Indo-US nuclear deal.
It is an effort to place India at par with China without actually naming
it. Come to think of it, these were the exact sequence of events in
China-US rapprochement. First came the Kessinger secret negotiations,
second was President Nixon visit (first ever for a US President) and third
was the agreement for the free flow of money to and from China. Later
China got its most coveted seat in UN Security Council.
With all the above is happening in public glare in India and US. Stage is
set for big things to happen in next 10 to 20 years.
How Much Money India needs and where is this Money to be spent?
First and foremost, capital expenditure is needed to upgrade the
infrastructure. Indian leaders have estimated this need to be about $150
Billion over 10 years. Indo-US nuclear deal is part of this effort. Only
recently the GE Chairman on his visit to India was upbeat on Indian market
potential. He has sensed a huge potential for GE products for the
infrastructure upgrade. Thanks to him and people like him who are visiting
India and taking back home a very positive outlook. This is very different
from business executives who visited India five years back. As the
infrastructure upgraded is begun, relocation of industry to India will
begin concurrently. It is a duplicate of what happened in China from 1982
to 2005. The difference is that China has the consumer goods manufacturing
monopoly; India is set to welcome high value, urgently needed, strategic
items. Auto parts, heavy machinery manufacture, machine tools, petrol
refining, textile machinery manufacture, and shipbuilding, electronic
hardware manufacture etc. is in this category, to be relocated to India.
The West needs to invest about $800 Billion to a Trillion dollar into
India over next 20 years. All this will be privately funded. This is over
and above $140 Billion needed to fix and upgrade the infrastructure. All
these monies will be paid back from the export earnings. Low labor cost,
high-end computer skills and availability of raw materials will play a key
role in this large-scale development. Hence if $55 Billion a year (same
amount as invested in China last year) is invested in India for the next
20 years, then the economy will quadruple from $800 Billion today to $3.5
Trillion in 2025. India will catch, China’s 15 years head start by 2020 or
sooner. This optimism has a reason, whereas Chinese manufacture low value,
lower end consumer products, India will concentrate on high end, high
margin products. The latter fact is well borne by the Indian IT and BPO
services exports. Margin in IT & BPO services is three times more than the
consumer goods products exports from China. With these developments,
Indian per capita income will also quadruple. Poverty will be vanished
permanently. Just like China today, India will be the envy of the world in
The West should stay assured that India not only wishes to be a merchant
manufacturer of products and services, but be also a very large consumer.
One billion people consume a lot of products. Hence high return on their
investment is guaranteed.
What are the Chances of above Happening?
The question more being asked now is not if it happens, the question is
how soon it will happen? The impressive 9.3% growth in last quarter set
the ball rolling in business boardrooms in the West. The Economist. COM and
International Herald Tribune both had cover stories. The former in its
natural self had an impressive lead story, although the contents are a bit
questionable. India today is on every corporate do list. Major US, British
and other funds investors have drawn up plans to enter India’s financial
market. Last few months have shown all the positive signs. First the
economy recoded growth far beyond even the Indian economists imagination.
Then the Monsoons which were predicted to be deficient this year came out
roaring from the Arabian Sea and Bay of Bengal to make up the deficiencies
of the past two years and last and not the least there are signs that US
Congress, after a lot of dithering will sign-on to the Indo-US Nuclear
deal. All the forgoing is building confidence in the West’s mind that, not
only India is trustworthy as a new manufacturing partner but also as a
All the needed trillion dollars or so investment may not come pouring in
like a Tsunami but money will be raining cats and dogs. The country’s
capability to absorb the investment will also play an important role.
Overheated economy may result in a collapse, which means that all
investment is to be red carpeted at a digestible rate. This digestion is
to be well managed with progressive increase as new techniques and new
tricks to manage it well are learnt.
Hence, with the present trend, it would appear that the chances of above
happening are better than ever before.
Let us get on with the Needed Structural Reforms
Reforms; Reforms; Reforms, should be the key slogan of any government
which is elected in next 20 years. The present UPA government has done
well. It has kept up the momentum of economic development set by the
previous NDA government. Both can share the laurels for this success. Both
governments are/were hampered by their political partners in these
reforms. Like it not, some of the following actions are overdue. Let us
get on with them. This opportunity of Foreign Direct Investment (FDI) if
missed, because we could not get our house in order will not come back in
a millennium or so. One thing is certain, US & Europe want two nation
suppliers, if India balks, they will go elsewhere. Let us not let them
down and make them consider another place. Let us give them whatever they
want. Mind it, the Western multinationals and investors are not dishonest.
They are plain simple businessmen, doing their best to maximize profits
and protect their investments. India will do the same when India has money
to spare and is ready to invest it abroad. Hence all those battle cries of
the past about bad world of multinationals are to be dumped. Indian
leftists have to understand the forgoing. Look how China succeeded by
befriending the West. I repeat again India has to do the same. These
outstanding reforms are to be taken up pronto.
• Labor laws
• FDI & Insurance
• Many more
Easing of the labor laws is paramount to any major shift of manufacturing
from West to India. The left legislatures are not leaning from the Chinese
experience. If they persist in their attitude, they may have to be
bypassed and help sought from opposition NDA to pass the necessary
legislation. De-regulation in a few industrial sectors is far over due.
The privatization, which had gathered some steam under NDA government, has
been completely side tracked. So is the relaxing of FDI rules in important
sectors of retail trade and other areas. Anybody who has shopped in New
Delhi & Mumbai, knows that how chaotic is shopping experience and how
money is fleeced by mom & pop storeowners in the name of variety and
convenience. It is substandard and pricey goods they are selling. What
they need is competition from the super stores. It will improve quality
and kill the craze for illegal imported goods. All political lobbies
connected to these delays are to be re-educated. Previous experiences of
50 years are to be un-learned in favor bigger and better things.
My point is that China admiration in the West has declined one notch. May
it be due to their militaristic ambitions or their strategic foray in
Indian Ocean or simply threatening Taiwan, Japan or Vietnam with force or
under pricing their currency to gain advantage in the market place? It is
making the West a bit uneasy. India came out from behind and put up a very
competent manufacturer’s image with economy posting 8-9% growth. In
addition the current government, although handicapped by its leftist
partners has maintained a very business like image. This is being admired
everywhere. Unfriendly Western media has suddenly turned around. A new
very positive image is in the making. Nay Sayers will always be around.
Fortunately the admirers are overwhelming them. Let us not throw this
opportunity away. Let us get our house in order. Let us get on with the
economic reforms. Failing that, it is likely that the Western investor
take its dog and pony show elsewhere. That is not good for India.
Send your views to author
Do you wish to reach our readers?
your guest column
Copyright and Disclaimer:
The views expressed in this article are the author's own and not of this
website. The author is solely responsible for the contents of this
article. This website does not represent or endorse the accuracy,
completeness or reliability of any opinion, statement, appeal, advice or
any other information in the article. Our readers are free to forward this
page URL to anyone. This column may NOT be transmitted or distributed by
others in any manner whatsoever (other than forwarding or web listing page
URL) without the prior permission from
us and the author.
Previous articles by:
Next India-Pakistan War will be over...
Western media thrives on Indian poverty
N-Deal: Plan B if the Deal Fails
Vanishing Poverty and Slums in India
US Legislative Process: Indo-US N-Deal
N-deal: Economic, Political and Techno...
Clash of Two Aggressive Religions
Shangri-la At the Foot of Himalayas
Russia, Upcoming World Power
Emerging Shia Power in
Indo-US Nuke impass:
Relationship with US, Europe
Pak Policy in Peril
after the Quake
Euro: Reference for
World Monetary Transa...
Are We Getting an
Accurate Picture of China?
All articles by: