In recent weeks, right-wing organizations in India have called for a boycott of Chinese goods amid an ongoing military standoff between the two countries in the Doklam region. However, the Hindustan Times quoted an online survey by Local Circles, India’s leading citizen engagement platform, as saying recently that 83 percent of the 8,689 respondents said they would “prefer a Chinese product over its Indian version as they believe it will be cheaper.”
There are complex explanations for the cost advantages of made-in-China products, such as complete domestic industrial chains, which can help cut production costs. India has long wanted to replace China as a global manufacturing hub but that goal cannot be achieved overnight, as the Local Circles’ survey results indicate. Given this situation, absorbing foreign investment could be a shortcut for India to realize its dream.
India, with a high economic growth rate and young labor force, has grown increasingly attractive to overseas investors in the manufacturing sector. However, it can take two or three years to investigate, negotiate and build a factory, and then another year or two to establish sales channels in the country so that local residents can access these made-in-India products.
Although backward infrastructure and an unfavorable investment climate may increase costs, foreign-based manufacturers can avoid import tariffs by localizing production and sales. Thus, made-in-India products are likely to have some advantages over their Chinese counterparts, and they could also be conducive to narrowing India’s trade deficit with China.
Many Chinese companies such as telecom equipment maker Huawei have announced plans to establish manufacturing facilities in India. The country is likely to experience heated inbound investment in the next 10 years as its consumer market matures, but granting national treatment to foreign-based companies doing business in India is a prerequisite.
Made-in-India products don’t necessarily have to be produced by domestic enterprises. For instance, Huawei smartphones made in India should enjoy the same treatment as local products because the Chinese company can create jobs and generate tax revenue for the local economy.
It is possible for India to catch up with China in terms of production and cut its trade deficit with China in the next 10 years, but the horizon will recede indefinitely into the future if India metes out unfair treatment to foreign-based investors and relies simply on domestic enterprises to turn itself into a global manufacturing hub.