Belt and Road Initiative and “Make in India”

Soon after he took office in 2014, Prime Minister Narendra Modi introduced the “Make in India” plan, with the aim of building the South Asian country into a global design and manufacturing center. When Modi took power, India had just endured its lowest GDP growth rate in a decade and was facing a grim economic situation. In this context, the “Make in India” plan kindled new hope for a recovery of the Indian economy. A slew of reform measures and commitments under the plan significantly enhanced India’s attractiveness for foreign investment. Consequently, India topped the list of destinations for green-field investment in 2015, overtaking China for the first time to become the world’s biggest foreign investment destination.

The same year, India surpassed China in economic growth for the first time. Although some analysts argued that the jump could be largely attributed to India’s adjustment of the GDP calculation method and benchmark year, India is undoubtedly striving to inject momentum into its economy by reviving its manufacturing.

“Make in India” Plan: Conduit of the Indian Dream

More than an encouraging slogan, the “Make in India” plan essentially calls for comprehensive, unprecedented correction and renovation of the country’s outdated procedures and policies and signifies a transformation of governance philosophy towards “small government and efficient governance.” A massive economic reform plan, “Make in India” is based on four major cornerstones: new ideas, new management modes, new infrastructure, and new policies on foreign investment. The plan not only testifies to India’s ambition to rise comprehensively, but also its people’s dream of making their country one of the world’s great powers.

Since Jawaharlal Nehru vowed to make India a uniquely attractive great power, that goal has become a beacon guiding Indians forward. China’s tremendous achievements since its reform and opening up in the late 1970s astonished India and even depressed Indian morale. Against the backdrop of a quickly rising China, some Western scholars seized the opportunity to pit the two against each other with the theory of “competition between dragon and elephant,” which has implicitly influenced China- India relations and even flavored the central tone of bilateral relations between the two countries.

Western scholars likened India to a docile, slow-moving elephant and China to a ferocious, aggressive dragon, reflecting subconscious recognition of the “China threat theory.” Consequently, dragon-elephant competition has now become an Indian version of the “China threat theory.” Research has shown a correlation between the rise of China and a surge of nationalist mentality among Indians in recent years. In his recently-published India Rising: Fresh Hope, New Fears, Ravi Velloor noted that one of the most significant benefits China’s rapid rise would bring to India would be “helping remove the roadblocks for India’s transformation.” It is becoming increasingly evident that China can provide “reminding signals” for New Delhi. China’s Belt and Road Initiative is the latest of such signals.

Belt and Road Initiative: India’s Teammate or Rival?

Since the inception of the Belt and Road Initiative, the plan has aroused worry, doubt and debate among people from all walks of life in India. Indian scholars have interpreted the intentions of the Initiative from various angles including economics, strategy and security. Some of their views have been echoed by the Indian government.

Rahul Misha, a researcher with the Indian Council for World Affairs, believes that the Silk Road Economic Belt and the 21st Century Maritime Silk Road (collectively known as the Belt and Road Initiative) have different strategic objectives: The former emphasizes infrastructure construction with a focus on the connectivity of Eurasia, Central Asia and West Asia, and the latter evidences China’s intention to play a greater role in the international arena.

India has supported China’s initiatives concerning the Asian Infrastructure Investment Bank (AIIB) and the New Development Bank, but has voiced strong doubts about the Belt and Road Initiative. Per Misha, this is because New Delhi considers the Initiative a serious threat after a sense of crisis arose from the China-Pakistan Economic Corridor. Even if India is willing to suspend its boundary dispute with China and hitch a ride on China’s economic development, if Pakistan is involved, any program between China and India will inevitably become problematic.

History has shown that manufacturing is usually the cornerstone of a big country’s rise. After the 2008 global financial crisis, manufacturing became a focus of competitions between various countries. Some developed countries have introduced “reindustrialization” or “return to manufacturing” policies, leading to a new round of industrial revolution and a reshaping of the global manufacturing landscape. Meanwhile, China’s manufacturing is shifting from a traditional development pattern, driven by low-cost factors, to a new development mode fueled by high-end intelligence and innovation. This has left certain space for developing countries with comparatively low levels of industrialization. According to predictions by Deloitte & Touche LLP, the “MITI-V” (an acronym for Malaysia, India, Thailand, Indonesia and Vietnam) are expected to take over China’s role in manufacturing labor-intensive products, with India most likely becoming the world hub for low-cost manufacturing.

Although India has the greatest probability of becoming the world’s next manufacturing powerhouse after China, the pressures that the South Asian country now faces are drastically different from those of China three decades ago. Thus, it is impossible for India to simply copy China’s successes.

First, India’s long elite-focused education policy has resulted in an astonishing polarization of education and serious deficiencies in basic education. Conservative estimates show that a third of the country’s population is illiterate, resulting in an overall poorly educated labor force. Despite having the world’s largest cheap and young labor force, India still lacks the skilled workers needed for modern manufacturing. India ranked only 105th in the 2016 United Nations Human Capital Index.

Second, India’s underdeveloped infrastructure in areas like transportation, electricity, logistics and public services has significantly undermined its competitive advantages in low-cost factors.

Third, India’s huge population should create an enormous market, but its large marginal labor forces and low-quality employment restrain the market’s consumption capacity. Of the three major roadblocks hindering India’s reform – the taxation system, the labor act and the land acquisition bill – only taxation reform has witnessed breakthroughs, and the other two have not seen any substantive progress. Along with restrictions from its legal system, India also suffers from factors such as a long-running irrational economic structure, inefficient government, and religious, social and cultural problems. Moreover, the rising anti-globalization trend is likely to become an external factor restraining India’s development. Another noteworthy factor is the fast growth of robotic technology as global manufacturing experiences an upgrade. In the near future, robots will reduce the manufacturing industry’s dependence on human labor. This will significantly offset the competitive advantages of India’s low-cost labor force.

Of course, low-cost manufacturing will hardly eliminate its need for human labor over the next 15 to 20 years. India has time to unleash its demographic dividend. If India fails to capitalize on this small window of opportunity, its demographic dividend could deteriorate into a dangerous “demographic bomb.”

Cooperation vs. Competition: India’s Dilemma

New Delhi is clearly aware of its own crisis. Its worries about the Belt and Road Initiative are rooted in its anxieties over its own disadvantages and its lack of confidence about its future economic growth, rather than the external “threat” brought by a rising China. The Belt and Road Initiative has erected a new framework for international economic and trade cooperation. As an important country along the Belt and Road, India will end up a big beneficiary of the program if it can connect its “Make in India” plan to the Initiative.

The Belt and Road Initiative is expected to provide the very funds, technology and experience that the “Make in India” plan urgently needs to unleash its demographic dividend, improve infrastructure and expand the market for its exports. Everything is positioned for win-win results.

However, because India sees China as the “driver” of the Belt and Road Initiative with a pivotal role in its implementation, it seems to have become a matter of pride. Indeed, the logo of “Make in India” is a marching lion composed of gears, rather than a gentle elephant. Whether or not that choice intentionally flips competition with China to that between a “lion” and a “dragon,” India’s recent moves to strengthen cooperation and contacts with its neighboring countries on both land and sea highlight not only its traditional interests and security considerations, but also its “great power” mentality in the form of its own initiative to facilitate regional dominance and a greater global voice.

Although India has never explicitly supported or accepted the Belt and Road Initiative, possibilities remain to merge pieces of the Initiative conducive to India’s development with its own “Make in India” plan. However, the “Make in India” plan will not optimally help New Delhi realize its dream of becoming a “great power” by sticking to outdated geopolitical and strategic mindsets.

The author is secretary general of the Center for India Studies under the Sichuan Academy of Social Sciences.