India's slow industrialization shows failure to grasp globalization


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India's slow industrialization shows failure to grasp globalization


Source: Global Times    Published: 2019-2-27

While there have been discussions surrounding how India's industrialization will affect China in the future, one realistic question currently faced by India is whether the country can achieve industrialization at all.

Indian scholars debated for years about how the country should push forward with industrialization. Unlike China, whose industrialization process started with manufacturing primary goods, then intermediate goods, and then high-tech goods, India wanted to take a shortcut in the 1990s and the early 2000s to avoid the primary manufacturing process due to concerns over pollution and high costs. According to India's industrial roadmap, it chose to first develop the IT sector, which was supposed to facilitate its industrialization later. The government at that time believed that it may overtake China on the curve by taking this shortcut.

However, it turns out that there is no shortcut after all. That's why after taking office, Prime Minister Narendra Modi rolled out a series of initiatives, such as "Make in India," to promote the country's manufacturing. But due to the poor education access, there aren't enough trained workers. A lack of infrastructure and obstacles in its foreign investment policies have also resulted in little gain for employment, although the country's economy has grown at a considerable rate.

Nevertheless, it should be acknowledged that India's industrialization is not completely stalled. Some large-scale groups such as Tata and Reliance have quite advanced production capacity in some industries. In solar energy, some projects with overseas investment have also seen substantial progress. Moreover, due to the high tariffs imposed by the Indian government on smartphones, some Chinese and South Korean manufacturers have set up smartphone plants in India, raising the sector's industrialization level accordingly. Yet, despite the progress seen in some industries in recent years, India's manufacturing is only about 20 percent of its GDP, which is still quite low.

In short, India's industrialization has been progressing slowly despite all the efforts. Quite a number of factors may contribute to the situation. In addition to the poor education coverage and lack of infrastructure, the country's land system and employment laws have also inhibited   industrialization from advancing rapidly. But one of the most important factors is that India has failed to seize the opportunities of globalization.

Generally speaking, the industrialization of Asian and other developing countries is a process of receiving inputs of foreign investment and technology. In other words, a process of integrating into globalization and undertaking the transfer of productivity. China integrated itself into the globalization process through reform and opening-up, leading some industries to move from the US, Japan and the four "Asian tigers" to China. Because China seized the opportunity of industrial chain transfer, it has now entered the post-industrialization period.

By comparison, India failed to grasp that opportunity. Although the country has tried to develop toward industrialization under the Modi government, it has unfortunately encountered anti-globalization sentiments. Even worse, instead of participating in the global industrial chain, which is China-centered, the Indian government tends to shun it. The government has always been reluctant toward, or rejected, some of the initiatives proposed by China, such as the Belt and Road Initiative and the Regional Comprehensive Economic Partnership (RCEP), which, to a large extent, hinders the South Asian country's industrialization progress.

As for a quick solution for industrialization, the most important thing for India is to improve its foreign investment policies. Afraid of being taken advantage of, India has set many obstacles and restrictions in its foreign investment policies, which have deterred many investors. Without foreign investment, the country's employment and infrastructure cannot be improved, inhibiting its industrial development.

Last but not the least, from the perspective of China, it is essential to have a clear idea of which industries should invest in India. Specifically, Chinese investment should target local consumer markets, rather than industries related to national strategies, which may have an impact on future industrial competition.

Fundamentally speaking, despite the boost of foreign investment, a country's level of industrialization depends on its own efforts. China has faced many restrictions from the West on its path toward high-tech manufacturing, but it has managed to continue developing on its own. Some industries may rely on external factors to develop, but some still require a country's own efforts.

The article was compiled by Global Times reporter Wang Jiamei based on an interview with Liu Zongyi, a senior research fellow of Shanghai Institutes for International Studies, a visiting fellow of the Chongyang Institute for Financial Studies, Renmin University of China, and a fellow of the China (Kunming) South Asia & Southeast Asia Institute.