Nov. 8 – Although India may see China as a rival in many key economic and political areas, the country also has much to learn from its Asian counterpart. Meanwhile, China has much to offer and much to gain from a rising India. For instance, China has the ability to greatly help improve the infrastructure of India and expand that country’s manufacturing capacity.
India has recognized that it is critical that it begin to further strengthen its economy. According to the 2013 Global Manufacturing Competitiveness Index report, published by Deloitte, India slipped two places down to fourth place (China remained in first).
A key reason as to why China has been so competitive compared to India is largely due to its strong investments in infrastructure. During India’s 11th Five-Year Plan (2007-2012), the country spent 5 percent of GDP on infrastructure, whereas, during the same period, China spent 7.2 percent of GDP.
In recent years, China has only increased its amount of spending to between 9 percent and 11 percent. Following China’s lead, India too has increased its spending, as stated in its 12th Five-Year Plan (2012-2017), to between 7 percent and 9 percent.
In addition to its projected increase in spending on infrastructure, India has also enacted a national manufacturing policy (NMP) in order to increase its share of manufacturing from 16 percent of GDP to 25 percent by 2022. Importantly, the NMP seeks to create large national investment and manufacturing zones. It also attempts to simplify the rules and regulations surrounding the compliance burden on manufacturing units.
In order to ensure the success of the NMP, Anand Sharma, India’s minister of commerce, industry and textiles, is strongly calling for Chinese companies to invest in the new manufacturing zones.
While China has already invested a sizable amount into India, this amount is much less than what the state has invested into other countries. From 2011-2012, total FDI equity inflows from China to India only amounted to US$72.6 million. This makes India China’s 30th largest recipient of FDI. Thus the room for growth in Chinese investment into India is massive.
China has seen the potential opportunities as well. During Chinese Premier Li Keqiang’s visit to India in May, he stated China’s intent to further develop the bilateral relationship between the two countries by setting up industrial parks and special economic zones in India. Two prominent examples include a proposed industrial park in Uttar Pradesh and an investment of around US$160 billion in the eastern province of Andhra Pradesh.
Additionally, during the second India-China Strategic Economic Dialogue held in August, both countries agreed to collaborate on projects such as high-speed rail, transportation of freight, and passenger train station development, as well as on formulating common standards for mobile communication and digital television.
In an interview with China Daily’s Asia Weekly, Chris Devonshire-Ellis, founding partner of Dezan Shira & Associates, explains that China has a proven track record of exporting its build-operate-transfer facilities around the world.
Further, Devonshire-Ellis suggested that “The opportunities to invest in infrastructure projects in India are actually far more attractive to foreign investors, so there are great opportunities for Chinese MNCs (multinational corporations) to take advantage of India’s need for rebuilding and get into this market.”
