Amidst the Covid-19 'storm', India awakens new economic potential?

Golden opportunities

Even in the early stages, when the epidemic was seen as a problem only for China, it still became a conundrum for an entire system of “economic cells” from continents, countries, to corporations, businesses… because as the saying goes: “When China sneezes, the whole world catches a cold”, affirming that China is the “factory” of the world. China has had an increasing influence on other developing economies through trade, investment and ideas. In fact, in every household, from electronic devices, household products or consumer goods, products made in China are used.

Make in India is Prime Minister Narendra Modi's top economic development policy. Photo: DW

But all that could change. The ongoing US-China trade war has accelerated plans by global companies to move production out of China, both to diversify and to ensure uninterrupted supply chains. Asian economic powerhouses have begun to announce incentives to move production out of China, with Japan even setting aside a $2.2 billion fund to encourage manufacturers to move quickly. According to the US-India Strategic and Partnership Forum, 200 US corporations have been looking to move their production from China to India since mid-2019. This could accelerate in the coming period.

Moreover, the eastern coast of India lies in a strategic sea route to connect with Asia-Pacific markets, which is an advantage to optimize the supply chain and minimize transportation costs.

Moreover, India’s cost advantage is accompanied by a democratic structure that emphasizes transparency and international order and respects rules. India is willing to meet its supplier obligations without weaponizing trade. Thus, it can provide the global business community with predictability of development and a fair trade balance.

Domestically, the government’s 20-lakh-crore stimulus package, which focuses on tax breaks for small businesses and incentives for domestic manufacturing, could help revive India’s factory output, which plunged to a record low in March, with the industrial production index at just 16.7%. The hardest hit were the automobile industry (down 50%), and the computer and electronics manufacturing sector (down nearly 42%).

Many Indian businesses immediately launched a campaign called “Atmanirbhar Bharat”. Photo: Reuters

For the Indian domestic economy, this is a great opportunity. Many Indian businesses have immediately launched a campaign called “Atmanirbhar Bharat” - a popular Hindu phrase in India, meaning “self-reliance”. In the impact of the pandemic, with the disruption of many supply chains, Indians are increasingly feeling the shortcomings of their economy. India is a large economy but is dependent on external supplies in many areas. Prime Minister Narendra Modi is even considering “self-reliance” as a new direction for the Indian economy.

Stuck in a crisis

Even after a strict nationwide lockdown lasting more than two and a half months, the pandemic in the South Asian country has yet to peak, while the budget is increasingly tight. A report by the Indian Council of Medical Research shows that the country is spending up to 6.2% of its gross domestic product (GDP) on public measures to fight the pandemic, five times higher than the current level. But such efforts seem unlikely, as the World Bank has forecast that the Indian economy will grow by -3.2% in 2020-2021 - the lowest growth rate in more than 40 years.

Covid-19 cases have continued to rise steadily every day, at an accelerating pace since the nationwide lockdown was lifted in early June, exposing the weaknesses of India's already poor infrastructure and raising questions about whether the government is prepared to prevent a tragedy.

Low testing rates and poor contact tracing are the main reasons for the resurgence of Covid-19 in India. Photo: Business Insider

India's economic engine is operating in the context of the country's continuously "record-breaking" number of infections, the testing rate is many times lower than other countries that are also restarting the economy, while contact tracing is still limited in most states. A series of shortcomings in the work of controlling the pandemic makes experts fear that the peak of the epidemic in India cannot be seen. In fact, many opinions say that in this situation and with the second largest population in the world - 1.4 billion people, India will sooner or later surpass the US and Brazil to "take the throne" in the Covid-19 rankings.

Harjit Singh Bhatti, an expert at the All India Institute of Medical Sciences, said: “India is sitting on a time bomb.” And while the fight against the pandemic is fraught with difficulties, it seems that Prime Minister Narendra Modi’s goal of making India a $5 trillion economy by 2024 is also in jeopardy.

The Make in India plan is an ambition to turn India into a world factory, initiated by Prime Minister Narendra Modi in 2014, and is recognized as an ambitious approach. However, it is currently considered a failure, failing to promote India's advantages. In 2014, when Make in India began, the manufacturing sector accounted for 15% of India's GDP. After nearly 6 years, this number not only did not increase, but also "regressed" to 14%.

Moreover, important voices in Prime Minister Modi’s party are also not in favor of opening up the economy, even wanting to return to a period of economic isolation. Mr. Modi’s important voters – small farmers, shopkeepers, and small businesses – also do not welcome the idea of ​​opening up the market further.

The pandemic is causing unemployment in India to soar. Photo: Financial Express

So what should New Delhi do to take advantage of the opportunity and get out of this dilemma?! Experts say that during the remaining period of Prime Minister Modi's second term, India needs to adopt a medium- and long-term strategy, prioritizing a number of areas, especially needing to come up with attractive projects, calling for manufacturing companies and investment in the East Coast and traditional manufacturing clusters of India.

History shows that India often presses the “reset” button along with a crisis. With the economy gradually recovering from the pandemic, the Modi government still has the opportunity to ride the tide of geopolitical change, and boost Indian manufacturing. Remember, right after the reforms in 1991, an album called “Made in India” became a phenomenon in the world music market, selling more than 5 million copies. Like music, it is time to revive the Made in India plan to gain a global card, and develop new industries, creating millions of jobs for workers. This is the new ray of hope for India.