China + 1 Strategy and Opportunities for India – UPSC GS3

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China + 1 Strategy:
  • The “China, plus one” strategy is about still using the resources allocated in China, but adding lower wages to the mix.
  • Due to rising labour cost in India, manufacturing firms are diverting some of the resources to low cost economies while still using their facilities in China as shifting entire production at once is not possible.
  • Wages for Chinese workers have tripled over the course of the past decade.
Problems with India’s Manufacturing Sector
  • Stagnant manufacturing sector:
India
China
Share of Manufacturing Sector
15%
30%
Merchandise Exports to GDP
12%
20%
  • Uncompetitive logistics: 
    • 70% freight is moved by Road which is expensive (Rs 2.58 per tonne-km)
    • Railways (Rs 1.41 per tonne-km)
    • Waterways (Rs 1.06 per tonne-km)
  • Judicial delays: India takes almost 1,440 days to implement a contract versus 150 days in Singapore because of huge judicial pendency.
    • As per Economic Survey 2019- reducing judicial delays is essential to ease of doing business.
    • While India has moved up 14 places to the 63rd position on the World Bank’s ease of doing business ranking in 2019, it still lags behind countries like South Korea and China.
  • Poor growth of India’s Ready-made Garments (RMG) sector: India’s exports to EU carry a 9.6% import levy versus zero from Bangladesh, Vietnam and Pakistan.
  • Import dependency on China: India imports 68% of its Active Pharmaceutical Ingredients (API) requirements from China.
Measures taken by the government:
  • Amalgamation of Labour laws: into four codes will help expand manufacturing and attract investments
  • Promotion of a culture of resolution: with the Insolvency and Bankruptcy Code and Arbitration and Conciliation (Amendment) Act, 2019.
  • Sector level manufacturing: The government has launched a Rs 3,000 crore scheme for setting up bulk drug parks and announced a Production-Linked Incentive scheme of Rs 7,000 crore for the pharma sector.
Way Forward:
  • Accelerate structural reforms: for ensuring competitive ecosystems and ease of doing business
  • Boost competitiveness and attract investments: through following reforms –
    • Labour reforms: increase working hours and ensure the ability to fire workers.
    • Land reforms: redistribute large land parcels on lease along with the right to rent, sub-contract and mortgage like Vietnam.
  • Improve contract enforcement and dispute resolution timelines: by promoting out-of-court dispute resolution, thereby reducing costs.
  • Boost sectoral level manufacturing: by adopting long term multi-pronged approach and providing tax and other incentives new-age manufacturing sectors
    • Capitalise on established strengths: in sectors like textiles, leather, auto components and pharmaceuticals.
    • Focus on Free Trade Agreements (FTAs): apart from resolving issues related to the Merchandise Export from India Scheme.
Conclusion: India’s ability to expand the manufacturing sector with its trickle-down effect will be critical to job creation and balanced growth.
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