‘India has to compete to gain from ‘China Plus One’ strategy’

The challenge for India is to show the path for longer-term fiscal sustainability, and the upcoming budget should lay out a path of rationalisation for public sector enterprises not doing well,

ESWAR PRASAD, professor of trade policy at Cornell University told Asit Ranjan Mishra in an interview. Here are edited excerpts:

There is much talk about the ‘China plus one’ strategy of multinational companies and its benefits to india? is the hype worth it?

There is a little bit of reality to the hype but certainly the hype might be getting a little ahead of the story. There is a desire in many parts of the world to try to dissociate the supply chains from China. There are concerns related to geo-political tensions and the vulnerability of supply chains that run through China. All of this again suggests the potential for more diversification and there is a real opportunity for countries like India to benefit from their alliance with many Western countries. India is seen as a friendly country with a young labour force that could very well meet some of these demands.

But having said that, it is not very easy to find alternatives to

China because many American companies, and many companies in other parts of the world too, rely on China to a very significant extent as part of their supply chains and it is not easy to make substantial changes in a short period.

Do you think the stars are perfectly aligned for India or India needs to make an allout effort to benefit from the geo-political changes?

While the Indian government has done a lot in the last few years to increase India’s capacity to serve as a component in the global supply chain, there are still some significant reforms needed. Banking is still not working very well. There are still some concerns about whether there is enough policy stability related to the tax regime, capital account regime and the financial markets. So companies and investors around the world are really looking for what India’s policy trajectory is going to look like. India has very strong growth potential. There is an opportunity here and it will need some work for India to be able to realise this opportunity.

The other important point to keep in mind is that India is not the only alternative, there are competitors including countries such as Vietnam and even Bangladesh in Asia. So India doesn’t have the playing field clear to itself. It needs to compete, and to do so effectively requires some additional reforms.

The government is going to present its last full Budget before the 2024 elections. What can the upcoming budget do to put the economy on a higher growth trajectory?

The key challenge for India is to show the path towards longer-term fiscal sustainability. Unfortunately, a huge increase in government expenditure through debt financing can work well for advanced economies, but is going to be very difficult for emerging market economies like India.

One of the other key priorities for India is to lay out a path of rationalisation of many public sector enterprises that are still not doing so well. One-shot privatisation of many of these enterprises is probably not quite in the cards. What we need to see is the reform path.

What should be India’s priorities under its G20 presidency?

India, given its neutral role, sitting between advanced economies and many emerging market economies on the other side, could think about ways to bring these two groups together. There are many shared interests such as financial market regulation, how to increase the benefits of cross border flows, how to deal with climate change. I hope that the Indian presidency will find ways to move forward on these areas.

Many central banks have started pilot projects on Central Bank Digital Currency (CBDC). Do you think there is a strong use case for retail CBDC?

There seem to be a range of motivations at play in the countries that are already experimenting with CBDC. What India has done is setting up the payment infrastructure, UPI, on top of which private payment providers can compete on a level playing field. Whether the digital rupee is really going to have value, given how well the UPI is working, is a valid question. At the margin, it can provide some degree of stability to the payment system. I don’t think it is going to have any negative effect. On the margin, it may have certain positive effects.