India should focus on manufacturing industry and Asian supply chain for growth

By Song Shengxia Source:Global Times Published: 2017/1/9 23:58:39

It would be naïve for India to assume that its economy will boom if it draws closer to the upcoming Trump administration amid a pending trade war between Beijing and Washington. Overestimating  US-India economic ties may mislead India and send it down the wrong path for economic development.

New Delhi needs to be realistic in terms of growth. Instead of tilting toward the US, it should focus on developing its manufacturing industry and integrating itself into the global supply chain to expand exports to narrow its trade deficits with major trading partners and create jobs to generate growth.

Over the weekend Assocham India published a report saying that India is likely to be harmed by a trade war between China and the US and that the country must be proactive to ensure that India is "on the right side of the upcoming US administration; or else the impact could be on the Indian services exports to the American firms."

Assocham's message that cautions being dragged into a US-China trade war seems to suggest that New Delhi should  lean toward Washington to avoid being implicated and be ready to reap economic gains from a growing alliance with the US. While this observation appears to be pragmatic, it is also nearsighted and may risk distracting India from a better path for economic growth.  

The weight of economic ties between China and the US is heavier than those between India and the US. Bilateral trade between China and the US reached $558 billion in 2015 while trade between India and US was about $109 billion. It would be self-deceptive to believe that the US needs India more than it does China.

Most importantly, the problem with the Indian economy is that its manufacturing industry is less competitive than China's, which means India imports more than it exports. China's exports to India reached $58.24 billion in 2015 while imports from India hit $13.38 billion, resulting is a trade deficit with China of $44.86 billion. Further, India runs trade deficits with most of its top trade partners. To bridge these trade deficits, India needs to develop its manufacturing industry and produce more manufactured goods.

Only by integrating itself into the global supply chain can India boost exports and drive growth. To achieve that, the best way is to work with a manufacturing powerhouse like China and develop its manufacturing capacity to become an integral part of the Asian supply chain. This would allow India to attract more foreign investment and open further to the outside world.

With a large working-age population, many of whom are employed in unorganized sectors, India has a greater need to develop its manufacturing industry to tap the potential of its demographic dividend and lift a vast number of people out of poverty just as China did and still is doing.

India needs to realize that there is no short cut when it comes to economic development. Failing to realize this, India risks setting its economy on a dead-end route. 

The author is a reporter with the Global Times.


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