Can India Be The Next China?

A former RBI governor and a former chief economic advisor have said that India can't be like China when it comes to What's the truth? manufacturing.

- Anand Tandon

Dr Raghuram Rajan, former RBI governor, has, for some time now, advocated that India should not follow China in focusing on the manufacturing-led export model. Instead, it should continue and enhance its services-led export model (source: outlookindia.com, https://bit.ly/3jfOX80). The Government of India is attempting to grow India's manufacturing base by offering a production linked incentive (PLI) plan for select sectors that it deems important.

In a piece published in Foreign Affairs' in the second week of December, Arvind Subramanian, former Chief Economic Advisor to the Government of India, and Josh Felman, former Senior Resident Representative in India for the IMF, argue that India cannot, in fact, replace China as a production powerhouse. Let's examine why.

China is increasingly less attractive

Post COVID, China has increasingly become less attractive to consuming countries. Rising political risk and domestic costs, its failed policy of zero COVID and local unrest, its slowing economy, and its need to increase domestic consumption instead of an unrelenting focus on export - all point towards a need for an alternate production base. Along with an acceptance of a diversified supply chain, even at a higher cost, 'China + 1' is now an accepted policy around global boardrooms. India, with its large land mass, local resources, a large consumption base and now better infrastructure, should be the natural beneficiary. But, as Subramanian and Felman argue, it may not be.