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G
loom seems to have taken us over. Our growth rate is faltering, the stock market is melting, and we don’t know which flight to catch – the one to Washington or the other one to Beijing. To add insult to injury, we don’t get invited to the high table anymore, not that this matters now.
It’s the economy, stupid. The weak links in the economy are well reasoned out and documented – manufacturing and jobs. While marketing the slogan of ‘Make in India’ to the world, we forgot to tell our own Indian corporates to do so, and if we did they aren’t listening. Private sector investment has to take on the baton now. I can think of two basic factors that are holding back this investment – lack of demand, demand being met by cheap Chinese imports, or a combination of these two factors.
Putting more money in middle class wallets by lowering personal income taxes, and allowing Chinese factories to put up manufacturing facilities in India are workable solutions. Erect tariff barriers to prevent Chinese dumping but incentivize them to invest in Indian manufacturing. Why can we not extend the PLI scheme to large foreign players who help India move up the value chain, including the Chinese?
I am essentially arguing for a China plus one, funded by Chinese investment and benefitting from Chinese technology. The only demerits of such a policy approach could be China moving the primitive end of the value chain to India, the other being sensitivity around strategic sectors. The market will take care of the former, and policy should address the latter.
India is a tariff king. While dealing with US tariff tantrums, India should take a pragmatic approach and lower tariffs, if that is the walkaway position of USTR. In the free trade vs. fair trade debate, we have factor advantages which will keep the balance of trade tilted in our favour, even after lowering tariffs. Given the realism with which Trump approaches tariff negotiations, we should focus on volume of trade and not individual tariff lines. This way, India will make institutionalist gains, governed by our factor advantages, which shall take care of the US realism around tariff sensitivity.
To sum up, I argue that a lowering of personal income taxes, an investment treaty with China, and tariff negotiations with the US focusing on doubling the volume of trade in quick time are an approach that will serve both India’s economic and geopolitical interests well in the medium term well. The invites to the high table and the front row seats will follow, not that they should matter then.
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