Prime Minister Narendra Modi surreptitiously missed the success story of Make in India in his Independence Day celebration speech on 15th August, 2018, which is an auspicious day for any India political leader to submit record card of his success. Political observers and economists were shadowed by surprises. Seemingly, there were two issues , which might have dragged him into back foot. They were job creation and investment by domestic investors.
Analysts believed that the main obstacles to job creation was the lackluster investment by domestic investors and demonetization. Initiative of domestic investors was castigated by controlled monetary policy and demonetization cast shadow on small scale industries, one of the major sources for employment.
In contrary, foreign investors were upbeat to invest India under the leadership of Modi government. His attempts for ease of doing business and political leadership, leading BJP to win elections in states one after another, paves the way to establish India a potential investment destination. But, foreign investment is not the panacea for growth and employment generation. It needs to be supported by domestic investment.
During Modi administration, excepting in 2014-15, domestic investment announced witnessed a continuous downturn trajectory , while foreign direct investment ( FDI) saw an upward trend. Domestic investment announced slipped to almost over half in 2017-18 from 2014-15 level and FDI increased almost double during the regime.
Given these structural changes in investment pattern, it is portended that FDI is likely to play important role in Indian economy. With trade war triggering a major turnaround in India- China relation, hopes are raised on China being the next lead foreign investor in India. Given the Chinese products becoming costlier after the tariff hike, investors in China will shift their productions bases in India and other countries.
According to Standard Charter, India and China will be the two major wings for global growth. By 2030, China and India will be the second and third biggest economies, next to USA , while outsmarting Japan and Germany
China is seen not a foe , but an opportunity after the trade broke. Trust deficit began to dilute and bonhomie between the two leaders rose. Both have vowed to make a relook to their relation and endeavor for a joint partnership for growth, instead of brickbat.
Needless to say, Mr Modi was never averse to China. He visited China four times as Chief Minister of Gujarat, when security concern was at peak . His priority was to seek Chinese investment.
The slip in the Chinese growth, triggered by trade war, caused a trust deficit among the foreign investors as well as Chinese entrepreneurs, to invest in China. Evidently, investment in China through M&A witnessed a downtrend , as compared to India. In 2018, M&A targeting Indian companies reached US $ 93.7 billion, which showed an increase by 52 percent over the previous year. Foreign acquirers spent US $ 39.5 billion in their overseas purchase in India. In China , it was US $32.8 billion.
There was a volta-face in Chinese attitudes India. Instead of prodding trade rivalry chorus, China extolled India’s potential as an important destination for investment. “India has an wealth of experiences in utilizing international capital. There is no doubt it has become more attractive to foreign investors”, according to Mr Zjao Gancheng, Director of Centre for Asia Pacific Studies at Shanghai Institute of International Studies.
As of the end of 2017, Chinese Ministry of Commerce recorded Chinese investment in India more than US $ 8 billion. Start-ups, infrastructure and electronic manufacturing have become the key areas for Chinese investment.
Chinese investors see India as the benchmark destination for overseas investment. . According to Mr Liu Xiaoxue, an associate researcher fellow of Chinese Academic of Social Studiess’ National Institute of International strategy, “Chinese investors see the country (India) as a benchmark destination , where development in many industries is moving at or near to the same pace as in China”
Currently, India accounts for a paltry share of Chinese overseas investment. But, this does not tell the reality. The recent trend of Chinese investment in India and its growth trajectory foretell a new era of Chinese investment in India.
Chinese investment synchronizes Make in India initiative. Digitization, Start-up are the key targets of Make in India . India has robust IT industry, that operates at cheaper costs in India than in China. By investing in these areas , China is in unique position to give a challenging shape to Make in India
Pinning hope in Make in India initiative, Chinese investors are gung-ho to invest to built up India’s innovative digital ecosystem. A big chunk of recent Chinese investment flowed in the fields of Start-up business in India. Nearly US $2.5 billion was committed for investment in Start-up business in between 2015 and 2016. The major investments were Beijing Mitene Communication Technology investment of US $ 900 million in Media.net and Alibaba investment of US$680 million in Paytem and US$ 500 million in Snapdeal.
China has already made a big investment in mobile telephone manufacturing in India. China brands now account for over 51 percent of the smart phones sales in India. Large penetration of Chinese top brands of smartphones, like Xiaomi, Oppo, One-plus, Gionee, Vivo, Huwai are posing challenges to Koreans and Japanese brands.
The growing presence of Chinese investment usher in a borderless investment in India. China has developed its own technologies in various fields during its modernization programme.
For example, China has proved its technological competence in bullet train after winning Jakarta – Bandung 150 km high speed rail project. This was against stiff competition from Japan. Currently, China Railway Corporation (CRC) is carrying out feasibility studies of high speed trains between Chennai – New Delhi route. It will be no wonder if the Indonesia case is replicated in India, since China has an edge in cost competitiveness and AIIB can act as prime donor to this project, where China and India are the prime stakeholders.
Given the new initiative of India and China to engage each other for economic ties in the wake of trade row, Chinese investment will bolster a new support to Make in India.
Views expressed are personal