Experts told CNBC that India could benefit from the trade war between the United States and China, but that much-needed land and labour reforms could prove difficult for corporations doing business there.
As a result of the trade war between Washington and Beijing, several businesses have moved production out of China to escape higher tariffs.
As a result, Southeast Asian countries such as Vietnam have frequently been highlighted as trade winners. India may also reap the benefits.
In an August research, Radhika Rao, an economist at Singapore bank DBS Group, stated, “India could extend its trade footprint in the midst of the US-China trade battle, particularly in categories on which the US has slapped duties on China.”
“Apart from trade, diversion in investment flows is an opportunity that India might profit from, as manufacturers seek alternate origination places,” Rao continued, hinting that the country could attract international investment.
India has a minor part of the global export market.
Despite the fact that Germany’s population is roughly 16 times that of India’s, German exports accounted for 8.17 percent of global trade flows in 2017. In comparison, Indian exports only represented 1.68 percent of global commerce that year.
Sectors that have performed well:
Pharmaceuticals, chemicals, and engineering are the top three industries in India that could benefit from the trade war, according to Rao in an email to CNBC.
India is already competitive in many industries on a global scale, and she believes it will be well-positioned to meet future demand in these areas.
According to a research published in July 2019 by the India Brand Equity Foundation, the South Asian nation’s pharmaceutical industry supplies over half of the global vaccination demand and 25% of medications in the United Kingdom (IBEF).
According to a separate IBEF survey, India ranked 12th in the world for machine tool production in 2017. In addition, the United States and Europe account for more than 60% of the country’s engineering exports.
According to Rajiv Biswas, Asia Pacific chief economist at IHS Markit, the industrial sector could profit as well, particularly the textiles, footwear, and electronics sectors.
Because tariffs will raise the cost of exports from the United States and China, some firms may shift production to other Asian countries, such as India.
“Over the medium run, India may be able to gain from this trend,” Biswas added, “with foreign manufacturers increasingly focused on the fast rising Indian domestic consumer market.”
For example, Foxconn, the world’s largest electronics contract manufacturer, transferred production from China to India this year. According to Biswas, this was done to “diversify their manufacturing supply chain away from over-reliance on Chinese manufacture.”
According to projections from the United Nations Conference on Trade and Development, these trade movements might boost the Indian economy by $11 billion.
Entrepreneurial challenges include:
Land laws and labour rules are two major obstacles for Indian businesses.
In a note to CNBC, Societe Generale economist Kunal Kundu said land regulations are the “greatest impediment” for industry and infrastructure growth.
He claims that current land restrictions make it difficult for the private sector to find space for manufacturing plants.
This is due to the fact that property ownership is dispersed throughout numerous states, and businesses must wait long periods of time to get land or avoid potential legal complications.
Another issue, according to Kundu, is that India’s labour rules are “very complex.” They are made up of roughly 40 acts, all of which must be followed to the letter. Manufacturers will find it harder to compete as a result of this.
According to Kundu, land and labour reforms are two of the “most crucial determinants of production” that must be implemented.
As a result, he suggested that a national employment policy be developed, one that empowers manufacturers to render personnel redundant during business downturns.
Investor attraction:
Sonal Varma, a Nomura analyst, told CNBC that a lack of sufficient infrastructure could be an issue.
This includes ensuring that manufacturing units are connected to appropriate highways and ports, as well as having enough power.
Some of these policies have been improved by the government, but they will take time to completely implement. A multibillion-dollar budget is also being used to improve India’s infrastructure and attract international investment.
August’s policy changes were viewed as a positive step forward for investment. The administration, for example, permitted 100 percent foreign investment in coal mining and loosened constraints in contract manufacturing and retail.
“India must move quickly, using creative policies and a laser-like emphasis on infrastructure development… However, there is still much more to be done, and it must be done quickly “According to Kundu.
Before India can fully benefit from these investments to strengthen its economy, more modifications to existing laws are required.
Varma explained that because India is such a large country, many regulations are governed by state governments rather than the central government. “Changes must come from the bottom up, not merely from the federal government.”
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