India's opportunities in the Post-COVID World

IN NEWS:

• Several experts have opined that the post-coronavirus world provides an array of opportunities for India.

WHY INDIA STANDS TO BENEFIT:

• Lesser impact of COVID-19: Unlike the US, Italy, Spain and a few other countries, the COVID pandemic has, so far, not been severe in India in terms of both positive cases and fatality rate. Hence, India stands to revive faster from the pandemic situation.
• Stimulating measures: The stimulus packages of Rs 1.7 lakh crore in March and Rs 20 lakh crore in May, supplemented by liquidity measures by the RBI has the potential to help the Indian economy recover faster and thereby create a conducive business environment.
• Saturation point in China’s advantages: Initially, China attracted foreign investors with decentralised and favourable FDI policy that had a lot of incentives like land, infrastructure, logistics, Cheap labour, large SEZs, favourable pricing of inputs and an under-valued currency. However, these advantages have reached a saturation point. Foreign firms are now dealing with a higher cost of production, along with stricter environmental norms.
• Lack of trust in China: Over the past years, the US-China tariff war has created uncertainty vis-a-vis trade and investment in China. Now, the origin of the coronavirus outbreak, and the lack of transparency in handling the pandemic has led to a lack of trust of the major economies when it comes to China. Hence, many foreign firms are looking to move their production bases from China and India offers them the best alternative.
• Vibrant domestic economy: India, the world’s fifth largest economy offers the best alternative in terms of depth and size of markets. According to a UNDP report, India will have a working age population of 1.14 billion, with rising urbanisation and a populating middle-class by 2025, creating a huge domestic market.
• Favourable factors of production: With the median age of 27 and around 900 million working-age population, India is a young and aspirational economy. India is also rich in mineral resources. Besides these, the government has been following favourable investment policies, by progressively opened up sectors for foreign investment, easing up resolution process and codifying the multitude of labour, industrial laws.
• Reliable political system: India’s democratic fabric, with an emphasis on transparency and rules-based international order provides the global business community with predictability and fair trade.

WHERE INDIA STANDS TO BENEFIT:

• In Geopolitics: There will be a major rethinking of world order once the pandemic is under control. India, with its non-aligned policies and fastest growing economy is a big enough country to have its voice heard in reshaping the global order.
• In business: Foreign companies are looking to shift their production base out of china and their home countries are facilitating the move. Japan has announced $2 billion worth of incentives and Korea is encouraging its firms to shift from china too. India can use the opportunity to attract them.
• In Pharma sector: At present, India contributes over 20% (by value) to the global generics market, with Indian products contributing over 40% (by volume) of US drugs. The Covid-19 crisis provides a potential opportunity for India to play the role of ‘pharmacy of the world’.
• In IP Rights regime: Governments have realised that IP could impede their access to medicines, vaccines, technology or reagents that are used in laboratory tests. This vindicates India’s stand on giving priority to public health through measures such as compulsory licensing. It can also help India counter initiatives such as  TRIPs Plus  which seeks higher level of protection.

CHALLENGES:

• Slow pace in codifying labour laws: The labour laws in India are a complex maze of over 40 central laws and more than 100 state laws. To overcome this, the consolidation of existing labour laws into 4 Codes- the code on wages, the code on industrial relations, the code on occupational safety and health and the code on social security was initiated. However, all except the Code on wages are awaiting parliamentary approval.
• Infrastructure deficit: According to the 2018 Economic survey, India will face a $526 billion infrastructure investment gap by 2040. The country still lacks some critical infrastructure such as 24x7 power, high speed internet (especially in rural areas), robust network of roads and ports and an integrated supply chain system.
• Skill gap: According to the Periodic Labour Force Survey (PLFS) 2017-18, nearly 93% of the population in India did not receive any vocational or technical training. The proportion of formally skilled workers in India is extremely low, at 4.69% of total workforce, compared to 24% in China, 52% in the US, 68% in the UK, 75% in Germany, 80% in Japan and 96% in South Korea.
• Weak money market: The primary money market institutions such as commercial banks, are facing stress due to the NPA crisis. Hence, they are not in a position to lend large amounts for multinational corporates. This volatility also affects the exchange rates of Rupee against global currencies.
• Underdeveloped capital market: There are but only few institutions in India capable of long-term capital lending, which is crucial for an industry to develop.
• Import dependence on China: India is heavily dependent on Chinese imports, especially in sectors such as Pharmaceuticals and Electronic equipment. For eg: India depends on China for around 70% of the Active Pharmaceutical Ingredients (API) that it uses in pharmaceutical manufacturing.
• Competing neighbours: India ranks 68 in the World Economic Forum’s Global Competitiveness Index, compared with Thailand’s 40, Indonesia’s 50, and Vietnam’s 67. Hence, there will be stiff competition in attracting foreign investments out of China.

WAY FORWARD:

• In a post-coronavirus global order, the world will witness a new variant of globalisation. Here, India has to ‘place herself well’ as there will be pivotal roles and positions to fill. However, unlike past decades, this time India cannot afford to overpromise and underdeliver on this opportunity.
• New Delhi should take up the leadership mantle and work to ensure mutual gains for the whole region in the post-pandemic scenario. This could involve relooking into the idea of a South Asian Economic Union, proposed by the South Asian Forum (SAF) in 2011.
• India is set to host the G20 summit in 2022, which would coincide with the 75th year of her Independence. As host, India would be in a position to use this opportunity to set the agenda of the summit to prioritise multilateral institutional reform and catalyse support for an enhanced Indian role in the international order.
• India’s comparative advantage can rely heavily on becoming a major provider for global public-goods and services. In the near term, the government should announce eye-catching schemes to invite companies to manufacture in India’s eastern coast and traditional manufacturing clusters. This should be supplemented by measures such as favourable labour laws, revamped SEZ policy and a stronger corporate money market. In the long term, India should strengthen its commercial diplomacy along with strong measures for promoting ease of doing business in the country.

PRACTICE QUESTION:

Q. “Geo-economic shift Post-Pandemic can favour India, but it needs to work its way up”. Discuss?