India, an alternative supply hub for the globe?

History is replete with instances when the domination of a nation came to an end due to a trigger, natural or otherwise. I am not going to pronounce such a prognosis for Asian giant China, but I would definitely say that the current crisis due to the outbreak of coronavirus will certainly make a dent in the overall position of China in the global market.


A large number of global companies — an estimated 5 million in number — will have to forego their growth forecast and in some cases accept the prospect of losses. Many are eager to label this as a potential Black Swan event in the global economy. Economists have predicted that 2019-nCoV could reduce global GDP by almost 0.3 per cent. They have also predicted that global companies will certainly look for alternatives — read other emerging economies — for investments and trade, if the current crisis persists beyond a certain time.


India was always talked about as the natural heir or alternative to this neighbour. Countries that have a high dependence on goods such as small components, parts, and raw material have taken a major hit as the instability caused by the outbreak has affected key sectors like manufacturing, trade, export-import, and tourism. Automobiles, smartphones, and retail are also amongst the worst hit. India will feel the pinch of lower production in sectors such as pharma, mobile handsets, consumer electronics and automobile where its exposure to China is high and the supply lines from that country, at present, are clogged. 


However, India can step out of its status as a victim and assume the role of an alternative provider for the world during these uncertain times. As Chief Economic Advisor Krishnamurthy Subramanian suggested this is a “good opportunity” for India to expand its exports. Subramanian suggested following the same pattern as followed by the country in the manufacturing of mobile phones. India is the second-largest mobile manufacturer in the world after China and is taking steady strides towards world dominance. The suggestion came after Indian traders witnessed a definite surge in the orders received by global trade partners mostly from the US and the European Union across sectors, with foreign buyers looking to replace China as a supplier. The numbers are believed to be growing as the uncertainty persists. India Inc must look to build on the goodwill that it has and redraw business plans that can aid other countries as well. 

Will India be able to take advantage of the opportunity or will its unpreparedness mar this opportunity of a lifetime? Well, there is no simple answer. If we take into consideration the efforts made by the government by introducing Make in India to promote domestic manufacturing, then the task seems less daunting. Companies dependent on imports from China should focus more on local sourcing to offset future supply disruption.


The upliftment of the Indian manufacturing sector and the continued thrust on micro, small and medium enterprises (MSMEs) is the long-term solution for the growth and sustainability of the sector but some quick measures are required by the government to propel trade — they can be in the form of tax liberalisation to attract foreign investment, notching up the domestic output and working on offering competitive pricing and good quality. It also opens the floodgates of opportunity for Indian exporters to fulfill the unfulfilled demand needs of global counterparts. 


While the Union Budget has made some provisions to infuse liquidity in the MSME sector in the long run, since the window of opportunity is limited in this case, the government should make provisions for easy and discounted long-term funding with tax incentives. Setting up last-mile connectivity, enhancing transit corridors, augmenting infrastructure linkages and taking care of safety measures will help establish an unhindered supply chain. The government needs to strengthen the “ease of doing” framework and make it seamless for global companies to help grow muted investments.


Calling the coronavirus outbreak, “a wake-up call”, Peter Navarro, a senior trade advisr to Donald Trump, has urged the US and the rest of the world to reduce the reliance on China for the import of medical and other supplies. India needs to wake up to the potential of the global markets and determine where its future lies. 


The author is president, Assocham

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