How COVID-19 Can Be a Huge Opportunity For India To Dominate the Trade Market Amid the uncertainty due to the Coronavirus pandemic, could we see India become a manufacturing hub for global companies?
Opinions expressed by Entrepreneur contributors are their own.
You're reading Entrepreneur India, an international franchise of Entrepreneur Media.
The recent outbreak of the Coronavirus, which originated from China's Wuhan city has spread to almost every part of the world. With more than 1 million people affected by this deadly disease, nations are dealing with panic, and fear among the people and it's badly affecting the businesses across all levels.
Countries like the USA, Russia, Germany, Brazil and many others are experiencing sluggish demand and a rapid rise in inflation. Until a few years ago, India enjoyed a remarkable position at the center of the South Asian economic growth story. But the tables have turned and it's not in the same pink of health. In fact, the 21-day lockdown and putting restrictions on the export-import business from the world has widely affected the supply distortion.
When China enabled restrictions during the COVID-19 outbreak, the world looked for an alternative and saw that they can't be dependent on a single nation. India could have gained from that situation but it failed to do so. The ongoing US-China trade war has benefitted the smaller nations like Malaysia, Thailand, and Indonesia. Their export to US has surged to a record high, but Chinese firms still retained 75 per cent of their export to the US despite the higher tariffs.
India as a country has largely been the service sector-led and achieved the position as one of the fastest-growing economies in the 1990s. Though today's dynamics are slightly changed, India has the capabilities to turn the table around if certain measures are implemented properly.
This is the time when India can learn from this current phase. It still has an opportunity to expand and grow over other counterparts. Countries like Australia, the US, Mexico, and many others are in favor to reduce their dependence on China. If India, caters to the domestic market and strengthen exports it can become one of the largest manufacturing hubs and can replace China as the biggest exporter till now.
Beyond finish products, more than 70 per cent of the material of the component from TV's, smartphones to electric goods originate from China. These electronics comprise nearly half of the gross merchandise value (GMV) of Amazon and Flipkart and nearly 47 per cent of online sales in India.
In the same manner, Home appliances as an industry is also witnessing a period of insufficient production capacity as Indian manufacturers heavily rely on China for components, even for the basic ones. An analysis by consulting firm Frost and Sullivan puts the home appliances market at INR 85,300 crores in 2019-20.
Home Appliance industry contributes a good percentage to the economy every year. If certain measures are taken effectively, it could boost up this specific industry. Once the Pandemic is over, it's important that companies should figure out new plans, instead of relying on China. Proper planning with a good amount of resources could help us bounce back, if industry makers relentlessly focus on domestic production, expanding the supply chain and improving the quality of our products it would further shoot up demand in India.
India should take steps forward to diversify productions, domestic manufacturing will help businesses to secure raw materials, it can also make a global impact if everything is processed here, instead of outsourcing from China. India undoubtedly has the potential to become the next manufacturing destination for global companies. But what requires is the best policies, support of the government to run Indian factories and improve the overall SMB's scenario, if all of this are implemented it can churn out better innovation and can compete with Chinese products.
Due to the Coronavirus pandemic, Chinese vendors have raised the prices of a few components by more than 2 per cent, which has led the prices of TV panels to jump by more than 15 per cent. This has resulted in the knock-on effect of raising the prices of existing electronic items on shelves.
India should not depend on China for raw material for any sector and develop itself as a global sourcing base by being a manufacturing destination. This can be achieved if the Indian government effectively work on its flagship project "Make in India'.
India is a trade deficit country, where we import more than we export. The current trade deficit stands at $11.25 billion in January 2020. China is the biggest trade partner of Indian when it comes to import.
India imports range of items such as electronics, nuclear machinery, medical instruments, auto components and accessories to iron and steel. India's Pharma industry is also highly dependent on Chinese imports.
Make in India is a good initiative by government but manufacturers believe it's easier to import and sell rather than producing it. This mindset has to change and it's important to motivate individuals so that we can start manufacturing in our own country. By doing so, we can have quality checks on the locally produced items as that is not possible when we import. Chinese products are known for their inferior quality, as there is no central agency to scrutinize the quality of the imported item.
Though, the government is focusing on reducing the trade deficit by increasing the exports to China rather than limiting the import of Chinese items. Even, the government has increased the import duties but there is no fixed assessment value, which leads to malpractices like under-invoicing and there is no control over misuses. Hence, the regulatory system and the monitoring functions of the State need to be strengthened and made effective.
The government should spend more on rural areas. Thus, improving the life of rural people and their incomes can drive up the consumption demand, which in turn will boost the economy.
Make in India initiative has the potential to turn the Indian economy upside down, all for better reasons. With the investment in the manufacturing sector and the advancement of technology, employment opportunities can also be generated. Such an initiative requires a well-coordinated effort from the Ministry of Commerce and Industry as well as the state governments.