In 2005, when China further opened up its economy, eased controls and metamorphosed into a market-led entity, India figured prominently on its investment radar. There began the saga of the most active phase of Chinese investment in India. Successive years down the line witnessed India-China bilateral trade soaring from as low as US$2.92 billion in 2000 to US$41.85 billion in 2008; and, by 2015, bilateral trade touched US$70.4 billion. While India’s exports to China amounted US$8.86 billion, China’s exports to India were to the tune of US$61.54 billion.
Clearly, China has set its sights on the big market that India offers for Chinese products. As on date, from almost all toys, computers and smartphone brands (such Haier, Lenovo, One Plus, Oppo or Xiaomi) to telecom equipment, China has made its presence felt in Indian households through these products.
For keeping up the pace of investment, a number of Chinese companies have entered India. In order to augment their businesses, they are shrewdly working on a strategy of employing local people, who are quite well versed with the country’s business rules. A case in point is Huawei Technologies Company Limited (India), where almost 90 percent of employees are Indians.
Those Chinese companies, which have gained a firm foothold in India, are gearing up their efforts to execute over US$60 billion worth of projects, according to one estimate. With Chinese companies facing poor prospects and shrinking opportunities at home, Chinese co-operation is expected to make a good impact in India’s high speed rail network, renewable energy sector, smart cities and, above all, the manufacturing sector.
There are no prizes for guessing that Chinese companies outstrip their Indian counterparts in technologies and performance cost, yet they are besieged by gigantic challenges in realizing sustainable strategies and outcomes in the Indian markets.
Their predicament may be explained thus: Whenever there is a surge in demand for Chinese products in India, the number of Chinese companies meeting the demands through sale of their products increases proportionately. The ensuing competition requires the companies to cut their margins. Consequently, Chinese companies find themselves in a piquant situation where they have to quit, invest more or create a manufacturing base in India. This dilemma is an outcome of their success in the market.
The impact of Chinese products in the Indian economy may be gauged by the fact that Indian manufacturers do not have adequate resources and resourcefulness to manufacture products on an equal footing with their Chinese counterparts. Indian products are not competitive against the Chinese either at home or in China. Thus, despite the trade imbalance, the government, which is committed to increasing bilateral trade, finds itself unable to curb the flood of low-priced goods supplied by China to India. At the same time, neither the government nor policy makers have been able to do anything that would trigger growth and demand in China for Indian goods and products, thereby helping Indian exporters.
That gives rise to the question of how India could, and should, then improve its chances of becoming a more favored destination for manufacturing and investment.
The answer is not far to see in a 1.28-billion-strong India, where the demographics make it an attractive market: the young, between 15 and 35 years, account for 35 percent of the population. Apart from being potential consumers, such a population profile can be expected to ensure sufficient labor supply over the next two decades.
Chiefly guided by advantages of the population and the work force, the government took the plunge to announce the “Make in India” program to draw investments from overseas companies. Under the scheme of things, the government has planned to set up large-scale manufacturing hubs countrywide to manufacture and export Indian products at very competitive rates.
As of now, it is quite difficult to predict the viability of the “Make in India” program. More so because Indian consumers are flocking to buy low-cost Chinese products such as electric and electronic gadgets, consumer items, machinery, capital goods and chemicals.
In this context, the impact of the slowdown in Chinese demand affecting our exports requires to be examined. Compared to what India imports from China, India’s range of exports to that country is less diverse. From the Indian side, raw cotton and cotton yarn, petroleum products, iron ore, granite, copper, metal products and some types of spices account for over 70 percent of our exports. If Chinese demand dwindles, resulting in lesser requirements of raw material, it is only natural that India’s exports to China will decrease. In fact, the fall in exports would be to such an extent that India will find itself unable to take advantage of the yuan devaluation for earning more dollars. This is borne out by the fact that India’s export to China went down by 19.5 percent to US$11.9 billion in 2014-15 from US$14.8 in the preceding year.