1. Home
2. Opinion

Indian think-tank divided on joining Chinese OBOR

By Subrata Majumder. Dated: 5/18/2017 11:27:16 PM

Investments will surge despite Delhi's cold shouldering

India considers Chinese OBOR (One Belt One Road) violates its sovereignty and territorial integrity by way of setting up China-Pakistan - Economic - Corridor (CPEC) - the flagship project of OBOR initiative. CPEC passes through Gilgit- Baltistan in Pakistan-occupied Indian territory in Kashmir. New Delhi refused to be bullied by the Chinese threat that India will be isolated while all its neighbours supported the OBOR. CPEC is one of the six projects of OBOR.
The fact of the matter is that OBOR is a Chinese domestic challenge, and not a global issue. Impinged by unbalanced regional development, China embarked on OBOR as a correction mode for balanced growth in regional development between west and east of China. Beijing aims to connect undeveloped west to Europe through Central Asia on land, dubbed as the Silk Road and connect its developed southern region with South East Asia through ports and railways, dubbed as the 21st Century Maritime Silk Road.
Other reasons that prodded China to the OBOR initiative were the over-capacity and the loss of low-cost manufacturing haven. The big stimulus package by the Chinese government during the global financial crisis might have saved China from plunging into recession. But, it unleashed certain side-effects, with China ending up with huge over-capacity in major industries, such as steel, cement and others. These led several state enterprises to fall into a debt trap.
The loss of low-cost production in the wake of Chinese currency Yuan's appreciation prompted China to go for export of high-end products and high technology as a policy strategy under the Made in China 2025 plan. The Jakarta - Bandung High Speed Railway, grabbed by China against the stiff competition from Japan, is an example of China using OBOR to promote the export of high-tech products.
OBOR is a new model of globalization, centering on infrastructure link. It is different from the erstwhile globalization, which was built up by trade and investment expansion through the windows of trade blocks and merger and acquisitions and value chain investments.
Some quarters in India echoed the view that it is in the interest of India to participate in the new model of globalization, where China will be in the hegemony. They argue that India should avoid isolation from the global partners. And that India desperately needs Chinese investment to build up its Make in India initiative into a successful venture for the world's low-cost production hub and generate more employment.
But the other pocket of think tank believes that it will be over-optimistic to hope for a gushing flow of Chinese investment if India joins the OBOR. Memorandums of Understanding (MoUs) with OBOR are symbolic. OBOR is not an economic institution. It will not act as a force behind China to invest in India. Chinese companies will invest in India depending upon specific projects and returns.
Chinese investment in India sparked as part a drive by China's Go Out policy. In 2015 Chinese investment increased eightfold to US $ 869 million, against US $ 141 million in 2014. Also, China is the biggest trade partner of India. But China is responsible for India's biggest trade deficit. One-fifth of India's global trade deficit is driven by the Chinese dumping goods into this country. Eclipsed by over-capacity and sagging economic growth, it is difficult to believe that Chinese investment in India will be swayed if India does not join OBOR.
In fact, there has been a growing awareness among the Chinese investors about the surge in India's potential in terms of its large domestic market, coupled with high growth in GDP.
The recent decision by China's biggest telecom company Huawei Technologies Co Ltd to set up smart phone manufacturing plant in India shook a Chinese daily. It hinted this shift as a wake-up call for China and beaconed China's loss of competitive edge. It foretold India to be on the way to become the world's new hub for low-cost manufacturing.
Besides Huawei, a number of Chinese vendors are in line to set up smart phone manufacturing plants in India. Vivo China has already set up a manufacturing unit in Greater Noida. Xiaomi, ZTE, One Plus, Gionee are in the queue to open their manufacturing shops in India.
Chinese renewable energy firm Chint Group, chemical firm SopoGroup, Shanghai Electric Company and Ding Sen are among the firms looking for substantial investment in India. China's biggest industrial park developer CFLD also looks to set up 10 industrial parks in India.
Even the Indian electronic manufacturers and assemblers, who were largely dependent on import from China, are shifting their procurement strategies from China due to high costs. Instead of importing from China, Indian firms forayed to establish their own manufacturing operations in India. Havells, Godrej, Micromax (a handset manufacture), Bosch (auto part maker) have all started exploring manufacturing operations in India.
The 'Buy India' campaign is further set to reinforce Chinese investment in India. Thrust on local procurement is likely to be the main policy perspective in the Make in India initiative. The Phase Manufacturing Programme for the development of domestic electronic industry and mandatory procurement of railway equipment for Metro rail projects are good examples of India moving towards the Buy India campaign.
Given the Chinese OBOR initiative more as a domestic compulsion to upturn the sagging economy and India's growing barges on import substitution, China's new model of globalization has little to offer to India.
—(IPA Service)