May 25, 2022 . Read 5 min
India’s opportunity in a new world
By Dhiraj Nayyar, Chief Economist, Vedanta
The global economy hadn’t quite recovered from the after-effects of a once-in-a-century pandemic when Russia decided to go to war in Ukraine, triggering another round of major disruptions. Both Covid- 19 and the war in Europe have exposed the fragility of global supply chains and turned the global mood against globalization, which was dominant for the prior forty years. Just like economies move in cycles, so does geo-politics and geo-economics. The next two decades will be different from the previous four. The era of globalization brought much prosperity. A record number of people were lifted out of poverty, particularly in India and China. Hopefully, the future will bring even more prosperity. But governments, firms and individuals will have to adapt.
Some new trends are already clear. A greater diversification of manufacturing supply chains is already underway. Far too much is concentrated in one region (East Asia) and within that region, in one country (China). In times of crisis, it is not wise to have all eggs in one basket. After experiences two successive crises, most countries are going to diversify risk. There are two dimensions to this. First, for certain critical goods, think medicines or metals, countries will opt to encourage local production. Second, for goods that can be produced more cheaply overseas, countries will look for three or four alternatives. There are great opportunities for India in both scenarios. As a large country with a very large and fast-growing domestic market, it is an obvious place to produce more goods locally. As a democratic country and open society, it is natural destination for those who want to locate manufacturing in a country other than China. The probability of India flexing its power to deliberately disrupt the world is low.
There is one thing though India needs to get right – create a cost competitive economy with the right mix of policy liberalization and policy incentives. The Government of PM Modi is on the right track. It is facilitating ease of doing business, exiting the business of doing business and formulating policies like Production-Linked Incentives to build a strong and globally competitive manufacturing base. Naturally, reform is a process and work-in-progress, but the needle has moved considerably in these years of crisis.
The time is right not just for Make in India but for Make in India for the world.
