With significant effort and a strong will to initiate the necessary structural reforms, India has the potential to lead the world out of the upcoming recession.
There is the worry expressed by many that while the western world can afford to be more pragmatic, emerging markets such as India cannot.
A concerted effort by the Indian Government and the manufacturing industry to actively seize a rightful place in global supply chains is the need of the hour.
Delivery on a promise of consistent, high-quality infrastructure as well as incentives that can help catalyse the creation of manufacturing hubs will be important.
As we watch the flattening of the COVID-19 virus curve in many parts of the world, the attention is rightfully being shifted, in part, to the economic fallout from the pandemic. The estimates of the potential impact vary, some predicting a near $20-trillion impact, ie 25 per cent of the global GDP, with many emerging markets suffering along the way. That's unprecedented and scary. There continue to be calls on Governments to do more, especially for those who are impacted with the loss of employment income. There is also the worry expressed by many that while the western world can afford to be more pragmatic, emerging markets such as India cannot, given the lack of fiscal space and the potential adverse consequences of increasing public debt. These arguments are valid.
However, for countries such as India, there may be a very different theme, opportunity really, here. To quote Adam Smith, “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” As highlighted in 'India's Renaissance Moment', and there is increasing evidence of it since that piece was written in early-April, the possibility of China facing isolation is very real. A combination of that, plus the growing realisation among the directors on the boards of global companies that excessive dependence on China for their supply chains is hardly appropriate, and will in fact reflect as poor risk management for the future, feeds further into this wave to look for alternatives.
China exports over $2.5 trillion annually, including $500 billion just to the US. This, of course, includes all sorts of exports, the largest being electronic equipment and machinery, down to slag and ash. Over the next five years, just a 25 per cent shift away from China is a $600+ billion annual opportunity. That's ~20 per cent of India's GDP, ~100 per cent of India's manufacturing sector output, and ~2x of India's annual export of goods. The real opportunity, over the next couple of decades, could be much larger. Yes, there will be competition for this business, especially from other countries in Asia, including Vietnam and Taiwan. But it is still a game-changing shift that India is particularly well-positioned to handle, given its large labour force, existential global linkages, and unparalleled entrepreneurial spirit.