While MNCs are choosing well-established regional supply chain in East and Southeast Asia for now, India must look to the future.
Of the many ways the post-Covid world will look different, the rapid confluence of trade, technology and national security will rank high among them. The US’s assertion in the 2017 National Security Strategy (NSS) that ‘economic security is national security,’ EU Commission President Ursula von der Leyen’s call this February for ‘tech sovereignty’, and China’s focus on ‘self-reliance’ in strategic technologies portend a new age for geo-economics. All three areas have acquired a sharper edge in the middle of the pandemic.
India must signal to its citizens, businesses and the international community how it plans to respond to this moment being shaped by three developments. First, the weaponisation of economics and trade, a trend prevalent among partners and rivals alike. Second, the measurement of national power will now be based on the ability to control global digital flows comprising technology, information, human capital and finance. Can India be an influential actor?
The decoupling of supply chains due to the sharpening US-China trade war makes this an imperative. GoI seems to have sensed this moment and is attempting to seize it.
And third, old industrial tools like import substitution and market restrictions will need radical repurposing for these times. Can India devise a new mantra compatible with the latest version of globalisation? All of this translates into one layered question: How can India first attract large investments, then grow and develop its technology sector, and finally share and export ‘Digital India’ to other geographies?
This will be based on India’s ability to manufacture for, and service, the growing digital markets, as well as shape the norms, rules, standards and topography of global physical and digital supply chains. The decoupling of supply chains due to the sharpening US-China trade war makes this an imperative. GoI seems to have sensed this moment and is attempting to seize it.
Dislocations in trade and technology are an opportunity to attract global investors. India has done poorly in the past. A September 2019 Nomura report suggested that of the 56 companies relocating out of China, only three have opted for India. Nevertheless, decoupling is a long-term process. While MNCs are choosing well-established regional supply chain in East and Southeast Asia for now, India must look to the future.
Beijing’s economic statecraft underpins its efforts to shape the world in its own image through territorial aggression, debt-trap diplomacy and institutional capture.
In this regard, India’s decision to announce three interrelated schemes on production-linked incentive (PLI) for manufacturing of components and semiconductors, and electronics manufacturing clusters, is important. These replace the earlier ‘merchant export from India’ scheme, and align India’s support for its nascent electronics industry with WTO rules. This new regime for manufacturing and export is designed specifically to draw in large global manufacturers like Apple and Samsung, facilitating the relocation of a part of their production base and downstream suppliers to India.
The ability of just a few global investors to help India integrate into global supply chains (GSCs) should not be underestimated. For example, the market value of the hardware Apple produces in China was nearly $220 billion in FY2019, of which it exported $185 billion, dwarfing India’s total electronics exports of $8.8 billion in the same year. Apple has over 800 production facilities globally, over 300 of which are based in China. Even minor relocations of these value chains to India will be beneficial. The reported relocation of certain processes to India by Apple contractors Wistron and Foxconn, among the largest and most sophisticated Taiwanese electronics manufacturers, will bring with them their own secondary supply chains.
Such opportunities will multiply for India — such as the Britain-proposed ‘D10 alliance’ (a club of 10 democracies) on 5G and emerging technologies — begin to reorganise patterns of trade to favour nations ‘politically trustworthy’. The logic driving disengagement with China on crucial supply chains is obvious. Beijing’s economic statecraft underpins its efforts to shape the world in its own image through territorial aggression, debt-trap diplomacy and institutional capture. Part of India’s response to this reality will be political muscularity along the border and in the oceans. The other, more durable, response will be an obsessive nurturing and growth of the economy.
These ventures are also a litmus test for GoI’s resolve for reform.
This must be dictated by a strategy that enhances India’s ability to integrate into the production and manufacturing of strategic technologies, to secure value from global data flows, and to grow Indian platforms and digital propositions for the world. Growing and new investments from US blue-chip tech giants like Apple and Facebook into India’s manufacturing base and digital platforms augur well.
But these ventures are also a litmus test for GoI’s resolve for reform. In 1982, GoI’s integration of Suzuki into the domestic market for automobiles spawned a new wave of investments into this sector making it one of the world’s most competitive. As the realignment of supply chains accelerates post-Covid-19, investors from around the world will be closely watching the performance of these major global corporations in India before making their own decisions.
This commentary originally appeared in Economic Times.