Chinese investment can capitalize on India’s growth
Indian economy.
First, India faces obstacles in pushing for further economic reforms. Shortly after taking office, Modi launched the Make in India initiative to stimulate the country’s manufacturing industry. Under the plan, multinational corporations are being encouraged to move production operations into India, notably in 25 key industries that include transport, mining, electronics, chemicals and food processing. A raft of additional policies that are envisioned to boost India’s manufacturing sector have also been announced. For example, the Modi government has revised the rules in regards to import tariffs, doubling tariffs levied on finished goods while eliminating tariffs on imported components. Additionally, the administration has scrapped the Planning Commission and put an end to fiscal subsidies
for coal and natural gas, among other measures. But the new government has yet to make breakthroughs in areas including agriculture, electric power and the labor market.
Although Modi’s Indian People’s Party currently controls the majority of seats in the House of Commons, the Opposition still holds of the upper house which has been an obstacle for acts related to taxation and foreign investment the government has tried to push through. Besides, factoring in India’s system of government in which power is weighed toward the states, the Indian People’s Party and its allies control only a fourth of the country’s 29 states, adding to difficulties in implementing reforms.
Second, India’s growth numbers might be inflated. In the 2015- 16 fiscal year, India’s economy grew 7.6 percent, outpacing China for the first time and becoming the
fastest- growing
major economy globally. Its fiscal deficit as a percentage of the GDP also fell to 4 percent from the previous year’s 4.5 percent, while inflation dropped to 5.4 percent from 10 percent in 2014. The country’s deficit under the current account shrank substantially over the past year, and its international reserves also hit record levels. Behind the brilliant figures, however, were the dramatic drop in oil prices between 2014 and 2016 and a 2015 change to India’s GDP calculation method.
Third, investing in India is an inevitable choice of capital, which essentially pursues profits. The accelerated flows of foreign direct investment ( FDI) into India do not seek to make contributions to India, but instead are allured by the promising profit prospects enabled by the economy’s growth and an array of favorable policies. Based on realist thoughts, India is simply striving to improve its investment environment and revise rules and regulations. The Modi government also updated FDI rules, raising the foreign investment cap to 49 percent from 26 percent, except for in state- owned banks and state- owned listed companies. The threshold limit for automatic approval has also been loosened to 500 billion rupees ($ 7.4 billion) from 300 billion rupees. If India can continue its current growth momentum, quicken ( or at least maintain) its current pace of reform, the Chinese capital that has entered the Indian market is likely to reap fat gains in the future, which is a de facto winwin for all parties.
Fourth, China can’t effect whether or not its low- end manufacturing will be overtaken by India. The rise of various emerging economies after World War II has shown that the economic takeoff pivoting around manufacturing requires external capital, foreign technologies, massive orders in the US and European markets, a competitive labor force in the emerging country as well as a relatively stable international environment. China neither controls nor monopolizes these necessary components. In fact, the rapid growth in India’s manufacturing sector has thus far had little to do with Chinese capital.
In other words, China doesn’t have the capability to limit India’s manufacturing development. What China is capable of is preventing Chinese investment from capitalizing on India’s admired growth outlook, indisputably an unwise choice.
In fact, the rapid growth in India’s manufacturing sector has thus far had little to do with Chinese capital.