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Roundtable Discussion on “Chinese Goods – now make in India and create jobs”

C3S Event Report No: 005/2019

On February 25 2019, the Chennai Centre for China Studies (C3S) held a Roundtable Discussion at C3S with Mona Dikshit, Program Coordinator, Rajiv Gandhi Institute of Contemporary Studies (RGICS), New Delhi. RGICS, a policy research think tank, is currently looking to conduct an intensive research for six months based on “Chinese Goods – now make in India and create jobs”. C3S members present included Mr. Sunil Rallan, Managing Director- J Matadee Free Trade Zone Pvt. Ltd.; Mr. Somi Hazari, MD Shosova Group of Companies; Senior Advisor (India), Transnational Strategy Group LLC. ; Mr. K. Satyanarayan, Director, New Horizon Media, Chennai; Mrs. Uma Balu, Founder and Director, Sahara Asia, Chennai; and Cmde. R. S. Vasan IN (Retd.), Director, C3S. Other participants included C3S young scholars and interns. Mr. Sunil Rallan moderated the discussion. Mrs. Mona began by explaining that RGICS, after speaking to various policy makers and scholars, identified the most relevant issues regarding India-China economic relations:

The Level of trade deficit: This level is very disturbing in India as most of the non-oil trade, i.e. around 75-80 per cent, is accounted for by China and this is not sustainable in the situation when two countries want to maintain an amicable relation. Interest of China to invest in India: Firstly, China’s economy is an ageing economy and the proportion of the youth is decreasing steadily with the country’s One Child Policy, albeit it being recently relaxed. Secondly, China has started investing in large scale infrastructure, artificial intelligence, etc. and is hence encouraging its domestic low-end manufacturing companies to invest more in these sectors and even expand into other countries such as Bangladesh, Vietnam and maybe a little in India. In the case of India, the problem of job creation is worrying the economy as a large scale of unemployment is observed in the country. The Indian government is looking to grow the country’s manufacturing sector by about 20-25 per cent.

Therefore, India is looking at it from both the supply side and the demand side- the supply side being China which has the investment, the finance and the technology to invest, and the demand side being India which has an objective to grow its manufacturing sector. The think tank, RGICS, has taken this as their research hypothesis and its objective is to come up with a policy strategy that would help improve the manufacturing industry in India with Chinese investments as well as creation of job opportunities for Indians. RGICS has decided to go about this by talking to all stakeholders in both the countries and aims to facilitate a visit to China by the end of March 2019. The stakeholders from China will include business delegations, chambers of commerce and the major Chinese investors who would be interested in looking at India as an investment destination. Stakeholders from India would include the policy makers at the Centre and the State level, industrialists and most importantly the State Governments. RGICS believes that the State Governments play an important role as they are the ones who need to make the move in making this investment successful.

Mona further explained her think tank’s main findings, having already spoken with several of the stakeholders from both China and India. From China’s point of view the primary issue, the country’s business leaders are concerned about the issue of visas by the Indian Government to the Chinese business officials. Chinese businessmen claim to be facing challenges during the process of visa renewal as well. But the Ministry of External Affairs, Government of India, disagrees, while stating that the MEA treats every country equally. Secondly, RGICS spoke to many policy makers who feel that since the second wave of investments in November 2018, medium and small industries from China are looking to invest elsewhere as the labor costs in China are high. Thirdly, the Confederation of Indian Industry (CII) views that for investments to be successful in India, there should be proper cooperation between the Government, Industries and the labor in the country. CII also opines that the labor policies in the country are not very fair. This was especially with respect to the electronics industry. The textiles industry on the other hand are at a critical juncture and are eager to take up this opportunity and believe that the State Governments are the ones who need to take the initiative for this to work. Many policy advisers are concerned about the fact that State Governments are short sighted and are not able to make long term goals in this regard. Finally, RGICS spoke to the governments of Rajasthan and Madhya Pradesh. While Rajasthan is quite keen about this opportunity and wants to focus more on job creation, the government of MP is not positive in its outlook. After speaking to the stakeholders, the RGICS study has decided to focus on main five industries – electronics, textile industry, rubber and plastics, machinery and machine tools.

Mr. Sunil Rallan proceeded to give his suggestions for this RGICS study. He firmly believes that for the country to take advantage of investments from China and even other countries, India first must understand its strengths and weaknesses with respect to the above-mentioned industries. There are some fundamental problems with India’s policies and agendas which has prevented many Indian businesses from taking off. If these issues are not solved, the probability of Chinese businesses taking off in India is also very small. Thus, think tanks should focus on coming up with a process to overcome these problems to achieve an agenda and not just focus on building new agendas that might or might not work in the country. The core issues are to be addressed. When an idea is generated by an Indian entrepreneur, for example a factory for a semiconductor chip, he/she faces massive bureaucratic hurdles while applying for approvals, apart from land acquisition issues. Hence by the time the factory is ready to start manufacturing, the idea/product by itself would have become outdated. Whereas in China the support for new enterprises is swift and this enables fast implementation and timely, profitable results. Another edge China has over India is that many businesses there are using new concepts such as office space sharing or renting a factory space. This enables quicker and hassle free platforms for the product to be manufactured. Once the product’s sales are saturated, the manufacturer moves on to working on the next idea while perhaps vacating that space.

Mr Rallan added that India should focus on attracting investments from other financially strong sources like Japan and Taiwan which are manufacturing bases for the US, UK, etc. and whose industries are invited by the Chinese to invest in the Mainland (China). These investments, again, will only be successful if Indian industries identify their own challenges and resolve them.

Mr. Somi Hazari suggested that new investments should focus on MSMEs. He believes that these investments made in small sectors would help manufacturers overcome challenges such as competition with the Chinese industries in the lower market, the negative impact of China dumping its products in the Indian market at low prices and low productivity issues. Many people from this sector believe it is possible for the small sectors to compete despite the existence of these problems. Moreover, small industries would fail if they do not overcome the problems in the initial stages. The various problems that exist in industries for both the Chinese and the Indians were described. The importance of bilateral cultural nuances was highlighted. The example of Gujarat being promoted as a prime investment destination yet the state not catering to the food consumption habits of visiting Chinese or other Indian businessmen was described.

(Compiled by Ms. Anjana Balaji, Intern, C3S; IInd year B.A Economics, Stella Maris College, Chennai.)

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