New Delhi: While it is a matter of concern that New Delhi’s trade deficit with Beijing is widening at a rapid pace, there is a growing trend of manufacturing shifting from the neighbouring country to India, Mobius Capital Partners founder Mark Mobius told ThePrint in an interview.
India’s trade deficit with China — the quantum by which imports exceed exports — stood at $72.9 billion in the financial year 2021-22, up from $44 billion in the year before. This year, in just five months from April to August, the deficit has already crossed $37 billion, implying that last year’s levels are likely to be crossed.
However, the Covid pandemic, China’s strict lockdowns and its ongoing ‘technological war’ with the US, have meant that an increasing number of manufacturers — especially in the technological hardware industry — is moving to India, Mobius explained.
Often dubbed the ‘Godfather of Emerging Markets’, Mobius is an iconic investor with decades of experience analysing emerging markets, having run Franklin Templeton’s emerging market fund Templeton Emerging Markets between 1987 and 2018. During his time there, Templeton Emerging Markets saw its portfolio grow from $100 million to $40 billion.
Tech war escalates
“This is one of the big trends that is taking place for obvious reasons,” he said. “The technology war that’s taking place between the US and China is going to put more and more restrictions on China. The Covid lockdown in China, of course, is having dire consequences for manufacturers there.”
“So, there are a number of reasons why India is going to become a target for manufacturers of technological goods,” Mobius added.
India capable of addressing trade deficit
Nevertheless, he said the wide trade deficit with China is concerning and needs to be addressed by increasing local manufacturing. India is capable of doing so due to its size and demographic advantage over smaller rivals.
“That [trade deficit] is something that really has to be addressed,” Mobius said. “And the way to do that, of course, is to have more local manufacturing in India. Countries like Vietnam, Thailand and other smaller countries with smaller populations find it difficult to do that, but India has the potential with a billion people, with competitive wages and a young population. It certainly has the potential to really increase manufacturing and eliminate a lot of the Chinese imports.”
That said, Mobius is of the opinion that this should not be achieved through input restrictions such as higher import taxes, since the supply chain still requires imports from China and other countries.
“What they [the government] should do is to encourage local manufacturers so that many products that are now being imported from China, can be manufactured in India at even lower cost.”
Also Read: Did Covid do what demonetisation couldn’t? Usher in ‘digital India’ & cashless economy
Long-term shift to India
The areas of interest for investment in India, Mobius said, are in the technology hardware space, where investments will enter “at an increasing pace going forward”, the infrastructure and building materials sectors and healthcare monitoring.
This shift of manufacturing to India is also likely to be for the long run, Mobius said, since it takes considerable investment to set up manufacturing facilities in a country. He, however, did add that this is provided the investment climate remains friendly.
“These kinds of shifts are not easy and do not take place overnight,” he explained. “So, for example, if Hon Hai Precision Industry is going to produce Apple computers or Apple cell phones in India, they have to make some big investments and they have to establish a supply chain, which is not easy to dismantle.”
So, once that manufacturing moves into India, providing that the environment is conducive to these manufacturers — good infrastructure and friendly government regulations — then it will stay,” Mobius added.
Govt moving quickly
Notably, he did say that the Centre is moving quickly to improve the ease of doing business in India, although the progress is patchy due to the federal nature of the country’s political structure.
“The government is really moving very quickly to, for example, speed up the bureaucracy to get the licences awarded more quickly and that sort of thing,” Mobius explained. “Of course, it depends on each state in India as well. Some state governments have done a terrific job in enticing investors to come into India.”
From a larger policy perspective, Mobius opined that India should continue to focus on manufacturing even as its services sector continues to grow strongly.
“The services industry in India is enormous,” he said. “Software services from India are marketed all over the globe, and companies like Tata are all over the place and this is a major industry for India already. Now India has to develop the manufacturing and hardware industry, and I think that is ongoing. We are witnessing that change right now.”
Sunak a double-edged sword
On a separate note, while sections of the media and society have been highlighting UK Prime Minister Rishi Sunak’s Indian origins, Mobius believes that this could be a double-edged sword for India as the country’s reputation could be tied to his performance.
“It’s good to see the Indian diaspora around the world taking prominent positions not only in the UK, but also in other parts of the world, particularly in America,” Mobius said. “This is a very good thing for India. But at the end of the day, this is a double-edged sword because if Sunak does not do well or becomes unpopular, this may not be good for India’s image as well.”
(Edited by Geethalakshmi Ramanathan)
Also Read: Govt tells agencies to coordinate crackdown on Chinese firms as it has ‘security concerns’ too