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India as Asia’s New Flying Geese
Context:
India is strategically positioned to capitalise on the “China plus one” approach, benefiting both economically and geopolitically.
Wild-Geese-Flying Pattern of Economic Growth:
- The term “wild-geese-flying pattern” translates to the Japanese “Ganko keitai.”
- Coined by economist Kaname Akamatsu to describe Japan’s observed economic development pattern.
- Japan as the Lead Goose: Post-war Japan initiated the pattern by producing low-value products like garments.
- As production costs rose in the 1960s, Japan shifted production to newly industrialising economies (NIEs).
- Newly Industrialising Economies (NIEs): The NIEs included Hong Kong, South Korea, Singapore, and Taiwan.
- These economies followed Japan’s lead, advancing industrial production.
- Next Flock of Geese: By the early 1990s, the NIEs helped launch the next group: ASEAN-4 and China.
- ASEAN-4 consists of Malaysia, Thailand, the Philippines, and Indonesia.
- While ASEAN-4 economies didn’t fully take off, China experienced significant growth.
- From Akamatsu’s perspective, the shift in supply chains away from China can be seen as a natural progression of economic development.
China Plus One Strategy:
- Coined in 2013, a global business strategy where companies diversify investments to destinations other than China.
- It gained traction due to US-China tensions and the pandemic.
- As multinational companies diversify their supply chains, the trend is accelerating.
India’s Benefits from the China Plus One Strategy
- Diversification of Supply Chains: Multinational corporations seek to reduce reliance on China and diversify supply chains with China Plus One strategy.
- This presents an opportunity for India to become a preferred destination for foreign investment.
- Increased Foreign Direct Investment: India has seen significant greenfield foreign direct investment (FDI) projects.
- It has 1,006 projects worth $83.7 billion in 2023, making it the top destination in Asia Pacific and the second globally.
- Broader-Based Benefits Across Sectors: Firms are looking to invest in various sectors, including smartphones, automobiles and components, capital goods, semiconductor assembly and testing, and apparel.
- Attractive to US-Based Companies and Developed Asian Economies: India is receiving investments from the US and Japan, South Korea, and Taiwan, which is expected to be an advantage.
- Potential for Domestic Value Addition: India can benefit from the China Plus One strategy by increasing domestic value addition.
- This can be done through policies focusing on improving the quality of human capital, innovation, and intellectual property rights.
- India’s PLI Scheme holds the potential to ensure indigenous production of goods and services, along with augmenting the value-addition in products.
Economic and Geopolitical Advantages of India:
- Large and Growing Consumer Market: India has a massive domestic market with a population of over 1.3 billion people.
- This makes it an attractive destination for companies looking to tap into this vast consumer base.
- Cost-Competitive Manufacturing: India offers competitive labour costs compared to many developed countries.
- This makes it an attractive destination for labour-intensive industries seeking to lower their production expenses.
- Skilled Labour Force: India has a large pool of skilled and educated workers, especially in sectors like:
- Information technology (IT), engineering, pharmaceuticals, and services.
- Improving Infrastructure: India has been investing in infrastructure development, including transportation networks, ports, and logistics.
- This improves supply chain efficiency and reduces costs for businesses.
- National Logistics Policy, 2022 aims to reduce the logistics cost which will bolster further investment and production.
- Strategic Geopolitical Location: India’s location provides businesses with access to markets in South Asia and the Middle East.
- This offers opportunities for regional expansion and trade.
- Government Incentives: The government offers incentives and concessions to attract foreign direct investment (FDI) and promote domestic manufacturing.
- This includes tax benefits, subsidies, and streamlined regulatory procedures.
- Economic Reforms: India has been implementing economic reforms to improve the ease of doing business and attract foreign investment.
- These reforms are aimed at creating a conducive environment for businesses to operate and grow.
- Supportive Ecosystem: India has a thriving entrepreneurial ecosystem with a mix of startups and established companies across various industries.
- This helps foster innovation and collaboration for companies entering the Indian market.
Challenges and Policy Focus
- Trade Balance Improvement: India’s trade balance is not very impressive.
- However, global value chain integration is a process, and India is still in its early stages.
- Domestic production will substitute for imports, and exports will rise, leading to a more visible improvement in the trade balance over time.
- Import Protection and Export-Led Growth: India’s policy of import protection is temporary and will need to be phased out at the right time.
- Export-led growth is feasible in a de-globalising world, as firms are looking to diversify risk and build resilience in supply chains.
- Government Policies: Government policies need to focus on increasing domestic value added, improving infrastructure, and making domestic products competitive.
- The government should offer incentives to firms engaging in research and development (R&D) spending.
- The government should develop an innovative intellectual property rights framework.
