The major sense of new geo-political order from the perspective of India witnessed on Monday, 1st May. While addressing the Chief Ministers across India, PM Shri Narendra Modi kept abreast that the states should be ready to explore the investments coming from China. He signalled that the various companies are planning to exit China in the wake of the Covid-19 pandemic. There is no denying that various companies are ready to shift their production units out of China. Many other countries are of the same view that tables may turn sooner or later. Being proactive is the need of the hour. Recently, Japan government has announced $2.2 billion of economic stimulus package to help its manufacturing units to shift from China.
So why India?
The first major upper hand India enjoys is its rich Demographic Dividend. 62.5% of total population is in the age group of 15-59 years. As per the Economic Survey of 2018-19, it is going to get better in near future. India started to undergo positive demographic transition in the early of 2005-06 and it is expected to enjoy it till 2055-56. In contrary, other major economies like Japan and China has exhausted its demographic dividend yield. It’s major implication is that we have a large working population (can be read as cheap labour force) which can prove to be boon for the production units who are looking to shift to India. The only underlying problem with India is the lack of skilled workforce, who can stand up to the expectations of employers across the world.
The second major advantage we have is our ‘Demand based Economy’. It’s a well-established fact that economic growth of India is prominently driven by domestic demand. The past data also supports this theory. If we look at the GDP composition of Indian economy, the contribution of export is merely 10% of GDP. So, the companies coming back to India would not need to worry about the demand. India is a country with 130 crore population and has enough capacity to create domestic demand for their products. It can be substantiated with a simple fact that India is the second largest market for blooming smartphone industry.
Another edge India possess is its vast Lower- Middle Income Group population. India is a low middle-income country with a gross national income per capita of around $2,000. Here, it may be a subject of dispute between thinkers that how a lower-middle income economy can be attractive for the manufacturers planning to shift out of China. It is true that the economic capacity of this group is not enough to create a sudden big demand in the economy, but the fact is the consumption stimulus and ambitions to prosper and enthusiasm to get rid of that the tag of being lower income people.
With all these factors, Indian Economy is now much formal than earlier. More than 80% population have access to formal banking system. Integrated and Unified indirect taxation system in the form of GST has smoothened the business processes and trade. Strong government at the centre with generous attitude toward corporates which believes in rapid industrialization acts as a catalyst in furthering the progress of manufacturing sector.
India may see all the above advantages as a sign of blissful complacency, but at the same time it needs to be more cautious when it comes to its contemporaries. The economies like Bangladesh and Vietnam are also attractive production point for companies planning to shift out of China. They also have cheap labour force and they are really doing equally well since past few years. In fact, Bangladesh has already surpassed India in term of economic growth rate.
Both central as well as state government must come with a detailed strategy to explore this big opportunity. It’s time to work on the much-awaited labour reforms, incentive plans for new companies and new Industrial policy.
(Writer is a student of FOC, BHU and Founder & President of Finance and Economics Think Council)