India can beat China by beating them in Manufacturing

India China border face-off has resulted in protests across the country. People are angry and justifiably so. People across the country are showing their anger in various forms, by uninstalling the Chinese Apps such as Tik Tok, by calling for a ban on the Chinese products, by boycotting the Chinese products. Therefore, let’s look at the impact of such calls of ban or boycott on the Chinese economy as well as on the Indian economy.

• Impact of India’s ban or boycott of the Chinese goods on the Chinese economy:

China is a large economy. As per world bank data, the Chinese economy is the second-largest economy in the world with a nominal GDP of 13.608 trillion US$ in 2018 (measured in Current US$). China is also a manufacturing superpower with a manufacturing output of 4.003 trillion US$ in 2018 (Current US$). What does it mean? It means manufacturing contributes approximately 29.42% (4.003/13.608) to the Chinese economy.

Let’s also consider the global manufacturing output in the same period. In 2018, the global manufacturing output was 14.17 trillion US$ (Current US$). Chinese manufacturing output was 28.25% (4.003/14.17) of the total global manufacturing output. That’s humongous. The USA is second in this list, but far behind China.

Now, let’s dig deeper. China mainly exports a variety of manufactured goods to countries across the world. As per the world bank data again, the Chinese exports contributed 19.51% to the Chinese economy in 2018. What does it mean? It means China exported approximately 19.51% x 13.608 = 2.655 trillion US$ worth of manufactured goods. Now, 2.655 trillion US$ worth of manufactured goods is a huge number. No country in the world exports such a large volume of goods.

Now, let’s come back to India. India China bilateral trade in 2018 was 95.7 billion US$. China exported approximately 76.87 billion US$ worth of goods to India in 2018. India exported approximately 18.83 billion US$ worth of goods to China in 2018. Therefore, in 2018, India’s trade deficit with China was 58.04 billion US$.

Now, let us suppose, Indians completely boycott the Chinese goods. Therefore, China will take a hit of 76.87 billion US$. China’s total exports will fall from 2.655 trillion US$ to 2.578 trillion US$. This will surely have an impact on the Chinese exports and Chinese manufacturing sector along with some allied industries such as logistics. But think hard, will this fall from 2.655 trillion US$ to 2.578 trillion US$ really derail the Chinese economy? The answer is No.

• Now, let’s assess the Impact of India’s ban or boycott of the Chinese goods on the Indian economy:

Again, going back to the world bank data, we find that India’s nominal GDP in 2018 was 2.719 trillion US$ (Current US$). And India’s manufacturing output in 2018 was 403.05 billion US$. What does it mean? India’s nominal GDP was 1/5 (2.719/13.608) of China’s GDP in 2018. And despite the launch of the Make in India campaign in 2014, India’s manufacturing output was still 1/10 (403.05/4003) of China’s manufacturing output in 2018.

Indian exports were 19.74% of India’s GDP in 2018. In other words, 19.74% x 2.719 trillion US$ = 536.73 billion US$. Out of these 536.73 billion US$, India exported 18.83 billion US$ of goods (mainly raw material) to China. Therefore, if the bilateral trade stops completely between the two nations, then, Indian exports would be 536.73 - 18.83 = 517.17 billion US$. This fall in exports won’t derail the Indian economy either.

However, the Indian companies that sell products domestically, as well as export goods worldwide, may take a hit. How? These companies depend on Chinese suppliers for various parts. India imports a variety of manufactured goods from China. Some of them are components for automobiles and smartphones, telecom machinery and equipment, APIs for the Pharma sector, other Chemicals, plastic & other metallic goods, machinery & tools for the construction sector.

All these sectors are India’s sunshine sectors. These sectors have not only created millions of jobs in India but also have contributed to the Make in India initiative. Take the case of an Auto company from Pune. The company exported nearly Rs 15000 Crores worth of products across the world. The company and its component suppliers sourced some parts from China worth Rs 1000 Crores. If we boycott or ban the Chinese products, won’t it have a negative impact on this large Indian Automaker? Take the case of the Pharma sector. India’s pharma industry is the third-largest pharma industry in the world. India pharma industry imports approximately 65% of APIs (Active Pharmaceutical Ingredient) from China. There are cases after cases of many Indian sectors being dependent on China. Any disruption will result in shortages and there will be a negative impact on various Indian sectors. Do we want that? Do we want to hurt our businesses? I guess, No.

• Therefore, what’s the way out? How can India teach a lesson to China?

It is possible by becoming a manufacturing hub.

"However, manufacturing is a hard and long game and India can’t become a manufacturing hub in a year or two".

It takes 8-10 years of constant policy support as well as capital along with infrastructure development. India needs to prepare for it now. Therefore, Instead of calling for a ban or boycott of the Chinese products, what we as people of India need to do is urge or put pressure on the government of the day to formulate manufacturing friendly policies in the country. Let the Chinese products come into India. However, side by side, we continue to develop our manufacturing sector and give a much-needed boost to the Make in India program.

For decades, we have been hearing about the need to grow the manufacturing sector. However, as things stand today, our manufacturing sector has not taken off. There is no point blaming this government or that government for the lackluster performance of the manufacturing sector in India. Make in India program was also launched to address the lackluster performance of the manufacturing sector. But things have not taken off. Involving talented manufacturing entrepreneurs in the policymaking roles will certainly help India in becoming a manufacturing powerhouse. Bureaucrats and economists can’t understand the technicalities and nuances of the manufacturing sector. Therefore, the government of the day must involve manufacturing entrepreneurs in the formal policymaking role.

We can’t beat China in the short term. If we try to ban or boycott the Chinese products, then, we will actually end up harming ourselves. However, we can beat China in the long-term by beating them in the manufacturing space. It’s a long game. But it must begin now.

Is Make in India a success?

Prime Minister Modi recently highlighted the importance of ‘self-reliance’ or 'atmanirbhar bharat abhiyan'. He further stressed that the Coronavirus pandemic forces us to become ‘self-reliant’ or 'atmanirbhar'. These words could not have been more true for India’s manufacturing sector, and Make in India program in particular. It is the right time for India to become self-reliant for manufactured products. Will his government act and develop the necessary manufacturing infrastructure in order for India to become self-reliant in the manufacturing sector? Can we boost our manufacturing output from the current 403 billion US$ to 2 trillion US$ in the next decade? It’s a long and arduous journey, but the journey must start now.

As per the world bank data, India’s manufacturing output in 2018 was 403.05 billion US$ (current US$). Whereas China’s manufacturing output in 2018 was 4.003 trillion US$ (current US$). In other words, China’s manufacturing output is nearly 10 times the size of the Indian manufacturing output. With nearly identical population size, India can not afford to be lagging behind in the manufacturing sector.

It is very well established that construction, infrastructure, and manufacturing sectors are the biggest employment generators in any given economy.

The construction sector is a cyclical sector and is currently at its nadir with many stuck projects and consumer confidence at an all-time low. The infrastructure sector has its own challenges pertaining to land and capital. Therefore, focus on the manufacturing sector or enhanced focus on the Make in India initiative at this stage of time will not only give a boost to India’s GDP growth rate but will also generate formal employment at a massive scale besides making India self-reliant. The timing is crucial because of the following 2 reasons:

1. Wages are rising in China since 2006 and therefore companies across the world are looking to develop supply chains in other low-income countries. As we all understand, Production is directly proportional to capital and labor, therefore, there is a massive opportunity for shifting supply chains to countries where labor rates are relatively low.
2. Coronavirus pandemic can be a trigger point for companies across the world to look for an alternative other than China.

However, it will be a herculean task for other low-income countries including India to tap into this opportunity because of the lack of Preparedness. Therefore, the question that arises is how can India prepare itself to tap into this opportunity? This is possible by developing the manufacturing infrastructure in the country. Only manufacturing entrepreneurs understand the various elements of the manufacturing infrastructure which is completely different from the physical infrastructure such as electricity, roads, ports, railways, etc.

Before focusing on the need to develop the manufacturing infrastructure, we as a society need to distinguish between the ‘top-down manufacturing approach’ and the ‘bottom-up manufacturing approach’.

In a top-down manufacturing approach, a large company (domestic or multinational) sets up a plant and then ancillary units come up to supply different parts to this large company. India’s auto sector is an example of the top-down manufacturing approach. This approach is also known as capital intensive manufacturing. Robots and hi-tech machinery are deployed to manufacture products. Therefore, employment generation in this kind of manufacturing approach is limited.

On the other hand, in a bottom-up manufacturing approach, an entrepreneur comes up with an idea to manufacture a product. This idea could be about anything such as toys, electrical items, souvenirs, electronic items, common household goods, etc. However, an Indian entrepreneur does not manufacture these goods in India and instead source these goods from China. No wonder, our trade deficit with China is rising year after year. Why can’t an Indian entrepreneur manufacture these goods in India itself? The answer lies in the lack of manufacturing infrastructure that we just talked about.

Without proper manufacturing infrastructure in place, it becomes difficult for an entrepreneur to manufacture simple common household goods in India itself. So, what are the elements of the manufacturing infrastructure that India needs to develop in order to tap into this big manufacturing opportunity? Here is a list based on the ground experience of entrepreneurs working in the manufacturing sector in India:

1. Involvement of startup entrepreneurs in the policymaking process for the manufacturing sector
2. Development of the tool-room technologies across India
3. Development of the concept of ‘manufacturing society’ to grant approvals at a faster rate and to achieve economies of scale
4. Financial support to manufacturing entrepreneurs
5. Enhanced focus on the technical skill development programs across India

The above 5 elements form the nucleus of the manufacturing infrastructure. Each and every single element is a study in itself and therefore it is beyond the scope of this article to explain these 5 elements in detail. With the manufacturing infrastructure in place, an Indian entrepreneur will be encouraged to manufacture goods in India itself rather than trading the same goods from China. India’s trade deficit with China is in excess of 60 billion US$. In other words, nearly 2% of India’s GDP. The manufacturing of these goods within India itself will propel India’s yearly GDP growth rate by 2%. Moreover, Indian entrepreneurs after having tasted success at home will be much more confident to export globally-competitive goods to the USA, Europe, Latin American markets.

Additionally, with this manufacturing infrastructure in place, companies across the world will be encouraged to shift supply chains to India thereby further boosting the Make in India program. The bottom line is, ‘we as a society will be competing on our strengths rather than the extraneous factors originating in China’.

What is the current state of the manufacturing sector in India and how does the Indian manufacturing sector compare with the rest of the world?

As per the world bank data, the world manufacturing output, value-added (in current US$) stood at 14.17 trillion US$ in 2018. And India's manufacturing output, value-added (in current US$) stood at 403.05 billion US$. In other words, India's manufacturing output, value-added (in current US$) was 2.84% of the world's manufacturing output, value-added (in current US$).

China, which has come to be known as the world's factory contributed nearly 28.25% to the world's manufacturing output, value-added (in current US$). Overall, Chinese manufacturing output, value-added (in current US$) stood at nearly 4.003 trillion US$ in the year 2018. The Chinese nominal GDP in 2018 was 13.608 Trillion US$ (Current US$). Therefore, manufacturing contributed nearly 29.42% to the Chinese economy. Chinese exports were 19.51% of the Chinese GDP. Or in other words, China exported approximately 2.655 trillion US$ worth of Goods.

Here is a chart showing the top 10 countries by share of world manufacturing output in 2018:

As can be seen from the above chart, the Chinese manufacturing output was nearly 10 times the Indian manufacturing output in 2018.

With nearly the identical population size, China has clearly taken a massive lead over India when it comes to the manufacturing sector.

And since 2014, India's manufacturing output has slowed down considerably. While from 2004 to 2014, India's manufacturing output grew at a CAGR of 10.59%. And since 2014 when the Make in India program was launched, the manufacturing output grew at a CAGR of 7.02%.

During the same period, the Chinese manufacturing output grew at a CAGR of 17.68% from 2004 to 2014. And since 2014, the Chinese manufacturing output grew at a CAGR of 5.89%.

The Chinese manufacturing output has slowed down from the period of 2004 - 2014 to 2014 - 2018 because of rising wages in China. It is clearly understandable.

However, what explains the slowing down of India's manufacturing output from the period of 2004-2014 to 2014-2018? While Chinese manufacturing is slowing down due to rising wages in China, other emerging countries like Bangladesh, Vietnam, etc. have grabbed the opportunity to boost their manufacturing output. And India has lagged behind because of a lack of preparedness.

The government of India launched the Make in India program in 2014. However, the program just focused on top-down manufacturing approach. The automotive industry nearly contributes about 50% to India's domestic manufacturing output. However, automotive manufacturing is a top-down manufacturing approach. A large automotive company sets up a plant in India after assessing the demand and the size of the Indian market. Thereafter ancillary component manufacturing companies come up to supply different components to the automotive company. This approach is known as top-down manufacturing approach. Robots and high-tech machinery are used in this kind of manufacturing to produce final products. Therefore, employment generation is not high in this kind of manufacturing approach.

The Make in India program failed to focus on the bottom-up manufacturing approach. And no wonder, India's manufacturing output growth has slowed down since 2014. Simple common household goods are not manufactured in India. Instead, these goods are sourced from China. Indian entrepreneurs are becoming traders and not manufacturers. Simple common household goods such as Diwali Lights, Toys, Electrical items, electronic items, etc. that are consumed on a daily basis are not manufactured in India. No big company will make these products. Only a startup entrepreneur can manufacture these goods. However, there is no policy framework or manufacturing infrastructure to support this kind of bottom-up manufacturing in India. And no wonder, Indian entrepreneurs do not manufacture these simple common household goods in India.

It is high time the Make in India Program focuses on bottom-up manufacturing to boost manufacturing output in India. Given the population size in India, the Indian manufacturing output shall be close to 2 trillion US$ and not 400 billion US$. The focus on bottom-up manufacturing will not only generate employment on a large scale but also boost India's consumption and exports thereby giving a fillip to India's sagging economy.

Macro and Micro level solutions for India to achieve double-digit economic growth for the next 2 decades

Macro

The Indian economy has slowed down. And it has been slowing down for the last several quarters now.

India GDP Growth rate last 10 years:

Data Source: Ministry of Statistics & Programme Implementation

As can be seen from the above chart that the quarterly GDP growth rate is consistently falling since Jan - Mar 2018 quarter. In other words, the quarterly GDP growth rate numbers are falling for the last 7 quarters. This consistent fall in GDP growth rate for the last 7 quarters has raised the concern that problems in the Indian economy are structural and not cyclical.

• Therefore, what are these structural problems in the Indian Economy?

As we all know, the GDP comprises of 4 major components:
Economy E = Consumption (C) + Investment (I) + Government Spending (G) + Net Exports (X=Exports-Imports)
Here is the data for each of the 4 components of the Indian economy:

Exports as a percentage of GDP of India:

Imports as a percentage of GDP of India:

As can be seen from the above charts that the Consumption and Investment comprise roughly 90% of India's GDP. And Consumption is plateauing. Whereas Investment rates are falling consistently.

Therefore, at a macro level, the problems are identified. The problems are plateauing consumption and falling investment rates.

• Now, the question is, how can this trend of plateauing consumption, as well as falling investment rates, be reversed? 

One suggested solution is to give money in the hands of the people, especially rural people, in the form of PM Kisan, MNREGA, etc. The rural people with money in hand spend spontaneously thereby raising the consumption. However, is this solution really sustainable?

The other suggested solution is employment generation. This is a good idea as this will not only give a boost to consumption but also raise investment rates. Construction, infrastructure, manufacturing are 3 sectors that can certainly generate employment at a large scale.

• The construction sector though is going through a bad phase with many stuck and delayed projects. The union government has recently announced a stress fund to revive the construction sector. This is a step in the right direction. 
• The infrastructure sector is plagued with land acquisition issues. Within the infrastructure sector, roads, highways, railways have been given a special focus. The union government recently announced that 100 Lacs Crores worth of Infrastructure projects will be started in the next 5 years. However, both these sectors namely construction and infrastructure will take time to fructify. 
• The third sector that can generate employment at a large scale in India is the manufacturing sector. However, years after years, the manufacturing sector has not boomed in India.

Micro

The manufacturing sector has the potential to transform the Indian economy. Focus on the manufacturing sector and in particular on the Make in India initiative can set India on a path to achieve double-digit growth for the next 2 decades.

However, to boost the manufacturing sector in India, we need to differentiate between top-down manufacturing and bottom-up manufacturing.

Since 2014, the FDI inflows in India in absolute number terms have increased. However, FDI inflows as a percentage of GDP are below 2%. 

Moreover, FDI inflows go into various sectors of the economy. And even within the manufacturing sector, the FDI inflows go into the top-down manufacturing. 

In a top-down manufacturing approach, automation has resulted in a lack of employment generation. Robots and high-tech machinery are deployed to produce goods. 

Therefore, the bulk of the employment generation is only possible in bottom-up manufacturing. However, even the Make in  India program failed to focus on bottom-up manufacturing. And this is where our policymakers lack attention to details. Focus on bottom-up manufacturing will not only generate millions of jobs but also reduce India's trade deficit with China. Focus on bottom-up manufacturing will facilitate Indian entrepreneurs to manufacture simple common household goods in India rather than trading these goods from China. Simple common household goods such as toys, electrical items, electronic items, Diwali Lights, Plastic products can be easily manufactured in India. However, Indian entrepreneurs trade these goods from China. To support bottom-up manufacturing, the policymakers need to focus on developing manufacturing infrastructure in India. And this manufacturing infrastructure can be easily developed in a span of 2-3 years. All it needs is attention to detail. Now, the question that arises is 'How can this manufacturing infrastructure be developed'? Part of Government Spending (G) must be geared towards developing the manufacturing infrastructure. Once bottom-up manufacturing kicks-up in India, the private investment in the bottom-up manufacturing will rise regularly. However, the government needs to provide a trigger point.

Once this manufacturing infrastructure is in place, the Indian entrepreneurs will manufacture globally competitive common household goods in India. New manufacturing jobs will be created. This will not only boost India's own consumption but also give a boost to exports while reducing the imports from China.

Net-net, the Indian economy can boom by focusing on bottom-up manufacturing.

India China Economic Comparison

India and China were at the same per capita income in 1980. However, as things stand today in 2020, the Chinese economy has taken off whereas the Indian economy has lots of catching up to do.

As per the world bank data, In terms of nominal GDP in 2018, the Chinese economy in current US$ (13.608 Trillion US$) was 5 times the size of the Indian economy (2.719 Trillion US$).

As per the world bank data, In terms of PPP GDP in 2018, the Chinese economy (25.399 Trillion US$) was 2.42 times the size of the Indian economy (10.5 Trillion US$).

The gap between the Chinese economy and the Indian economy is massive. And it will take India several years to catch up with China.

However, how did this huge gap develop between the Chinese economy and the Indian economy? To understand this, we will rely on the numbers rather than rhetoric.

And here are the numbers:

Firstly, Economy comprises of 4 major components:

Economy (E) = Consumption (C) + Investment (I) + Government Spending (G) + Net Exports (X=Exports-Imports)

Therefore, let's get the data for each and every component of the economy for both India and China.

• Consumption (C):

As can be seen from the above charts, the Consumption as a percentage of GDP in 2018 for China was 38.68%. Whereas, the Consumption as a percentage of GDP in 2018 for India was 59.39%.

Another point to be noted is that in the case of the Indian economy, the Consumption as a percentage of GDP has always been higher than the consumption as a percentage of GDP for the Chinese economy.

• Investment (I):

As can be seen from the above charts, the Investment as a percentage of GDP in 2018 for India was 31.31%. Whereas, the Investment as a percentage of GDP in 2018 for China was 44.06%.

One can also observe that for the Chinese economy, the Investment as a percentage of GDP has always been higher than the investment as a percentage of GDP for India. There is almost a difference of 12-15% as a percentage of GDP between the Chinese economy and the Indian economy.

• Government Spending (G):

As can be seen from the above charts, government spending as a percentage of GDP for China in 2018 was 14.68%. Whereas, the government spending as a percentage of GDP for India in 2018 was 11.23%.

One can also observe from the above charts that government spending as a percentage of GDP for the Chinese economy has always been higher than that of the Indian economy.

• Net Exports (X):

We will analyze exports and imports for both the Chinese and Indian economies.

Exports:

As can be seen from the above charts, exports as a percentage of GDP for India in 2018 were 19.74%. Whereas, the exports as a percentage of GDP for China in 2018 were 19.51%.

However, it is also evident that with rising wages in China, Chinese exports are falling consistently since the peak of 2006.

Therein lies the opportunity for India to focus on its manufacturing sector especially on bottom-up manufacturing to expand its exports worldwide.

Imports:

As can be seen from the above charts, imports as a percentage of GDP for China in 2018 were 18.73%. Whereas, imports as a percentage of GDP for India in 2018 were 23.64%.

• Calculations:

Having gathered all the data, we can do simple calculations for both the Chinese and Indian economies.

E = C + I + G + X

For China in 2018:
E = 38.68 + 44.06 + 14.68 + (19.51 - 18.73)

For India in 2018:
E = 59.39 + 31.31 + 11.23 + (19.74 - 23.64)

• Conclusion:

As can be seen from the above charts and calculations, the Chinese economy grew on account of higher Investment (I) and Government spending (G). The consumption as a percentage of GDP has always been lower for the Chinese economy than that of the Indian economy.

Therefore, it is no rocket science to understand from the above charts that for India to grow at 8 - 10% for the next 2 decades, the Indian policymakers need to make sure that both Investment (I) and Government spending (G) rise. The investment (I), as well as Government spending (G), must be geared towards supporting the manufacturing sector or Make in India program.

Focus on the manufacturing sector, especially on bottom-up manufacturing, is the need of the hour to achieve double-digit economic growth as well as to generate millions of jobs. When Investment (I) and Government spending (G) go into the manufacturing sector in India, then, it is highly likely that India's exports will also boom, thereby, giving a further boost to India's GDP.

How will electric vehicles affect the Indian economy and environment in general?

• Environmental impact of Electric Vehicles in India:

As the name suggests, Electric Vehicles consume electricity. The battery is charged for a period of 6-8 hours. So, electricity is the fuel in electric vehicles. However, let's look at the sources of electricity generation in India.

As of 31st March 2020, As per the Ministry of Power, Govt. of India, data, India's total electricity installed capacity is 370106 MW. Out of which 62.8% is generated by thermal fuels such as coal (54.2%), Lignite (1.7%), Gas (6.9%), Diesel (0.1%). Hydro contributes 12.4% to India's total electricity installed capacity. Nuclear contributes 1.9%. And Renewable energy sources contribute 23.5%.

Therefore, when 62.8% of electricity in India is coming from fossil fuels, then, won't that negatively impact the environment? Electric vehicles are brought to the market with the idea that they will reduce emissions. But, facts tell us that since 62.8% of all electricity generation in India is coming from fossil fuels, then, what will be the savings on the emissions front? And it is certain that no major country on earth would give up on its fossil fuels.

Secondly, it is clearly established that the process of manufacturing an electric car generates more CO2 than the process of manufacturing an IC engine car.

Thirdly, today's IC engines are highly efficient and there is continuous research & development going on to make them even more efficient.

Besides, the electric battery when discarded after years of use will result in a further environmental hazard. The discarded battery will end up in our lakes, rivers, and oceans, thereby poisoning the water bodies across India and negatively impacting marine life. When we can't recycle plastic and electronic waste, then, what is the guarantee that we will be able to recycle discarded batteries? Human beings must accept the fact that they are bad at recycling stuff unless there is an economic gain in the waste.

Therefore, given all the above factors, what's the fuss about electric vehicles? In fact, if we as a human race focus on improving the soil and reducing meat consumption, then, we might, in fact, take a concrete step towards tackling the issues of global warming. 

"Now, let's assess how electric vehicles will affect the Indian economy"?

Now, it's all right to talk about electric vehicles or EVs, however, talking about these things without proper research can be detrimental to India's manufacturing sector as well as to India's economy. Let's assess it here:

• First thing first, let's get some numbers for India's automobile sector:

India's automobile sector (including component manufacturing) is expected to touch 251.4 - 282.8 billion US$ by 2026.

Two-wheeler sales dominate the auto industry with approximately 81% of vehicles sold in FY 2019 belonging to the two-wheelers category.

The automotive industry also employs approximately 37 million people directly and indirectly. Direct employment is roughly 10 million whereas indirect employment is 27 million.

The automotive industry also contributes about 50% to India's domestic manufacturing output.

These are massive numbers and any disruption in the automotive industry is bound to impact the growth of India's GDP as well as employment generation.

• Having assessed the current automotive numbers, let's now focus on the working of Electric Vehicles.

An Electric Vehicle runs on an electric battery. This electric battery is made from 4 major materials namely Lithium, Cobalt, Manganese, and Graphite. And India does not possess these materials in abundance. Therefore, India will need to import these raw materials from abroad to make electric batteries in India. Where are these 4 major materials found in abundance? Primarily in Africa and South America. And China has already secured deals with these countries to buy these 4 major materials. China has already developed the supply chain and has become the leader in the manufacturing of electric batteries. India has lagged behind in this aspect. Neither do we have secured substantial deals to procure raw materials from Africa and South America nor do we have developed manufacturing capabilities to develop electric batteries in India.

Electric Vehicles are constant torque vehicles. What does a constant torque vehicle mean? It means, in layman's terms, Electric Vehicles won't be requiring a gearbox system. You just install the electric battery and accelerate. That's it. No gearbox system, no clutch system, just accelerate and use the brake system as and when required. At the same time, since Electric Vehicles would be running on a battery, therefore, there won't be any need for a combustion engine (diesel or petrol). Therefore, there won't be any need for carburetors, injectors, pistons, combustion chambers, flywheels, etc.

• Therefore, with the adoption of Electric Vehicles, 3 things would happen in India.

Firstly, since China has taken a lead in the manufacturing of electric batteries, and India has lagged behind, therefore, for the foreseeable future, we would have to source batteries from China. It is already happening. Many companies, large or small, have already started sourcing batteries from China. In fact, many startups have mushroomed in India that make electric bikes. All these startups source batteries, controllers, and other body parts from China and then assemble in India. These companies call themselves manufacturing companies, however, these companies are nothing but assemblers. Since, electric batteries, controllers, and other body parts are manufactured in China, therefore, the bulk of the jobs are generated in China and not in India. At the same time, these electric batteries are highly expensive. India's trade deficit with China is already in excess of 60+ billion US$ (approximately 4.2 Lacs Crore Rupees). Do we want to increase it further? Do we want to create manufacturing jobs in China? The answer is NO.

The second point is that since electric vehicles will do away with components such as a gearbox, clutch, combustion engine, piston, carburetor, injector, flywheel, then, what will happen to the component manufacturing companies who are currently manufacturing these components? Won't it result in the loss of manufacturing jobs on a large scale? All these component manufacturing companies employ millions of people. All these component manufacturing companies have invested heavily in setting up manufacturing plants. What will happen to these jobs? What will happen to these manufacturing plants?  Won't it derail the Make in India initiative? Won't it slow down India's GDP growth? Won't it make millions of people jobless?

And thirdly, what will happen to a roadside mechanic whom people approach on a typical Sunday to get their car repaired or serviced? Since electric vehicles will operate on a battery and do away with components such as clutch, gearbox, piston, combustion chamber, etc., therefore, the need for car maintenance will reduce. An electric battery will need less maintenance. Therefore, what will happen to millions of unorganized car mechanics in India? Won't it result in a loss of jobs in the informal sector? Won't it slow down India's consumption and in turn slow down GDP growth further?

• Conclusion

Therefore, unless and until India secures substantial deals with African and South American countries to source Lithium, Manganese, Cobalt, Graphite, and at the same time India develops its own capabilities in the manufacturing of electric batteries, we must not rush towards electric vehicles. Once we have developed internal capabilities to manufacture electric batteries, we can shift current component manufacturing jobs to electric battery manufacturing. That is doable. But without developing our own capabilities in the manufacturing of electric batteries and simply sourcing these batteries, controllers from China, we will be doing a great disservice to India's economy.

Coronavirus and other global factors should ideally have become an opportunity for India instead of a threat

These days in business circles or on online forums as well as on social media platforms, the talk is 'What will be the effect of the coronavirus on the already slowing Indian economy'? or 'Global factors are weak and therefore these factors are pulling Indian economy down' or 'World is entering into a recessionary phase'.

Some people term the above-mentioned reasons as valid reasons while others merely scoff at these reasons claiming that India's economic problems are more internal in nature than external.

Instead, Coronavirus and other global factors should ideally have become an opportunity for India instead of a threat.

Let's assess it analytically.

Economy comprises of 4 major components:

Economy (E) = Consumption (C) + Investment (I) + Government Spending (G) + Net Exports (X=Exports-Imports)

Let's now get the data for each and every component.

• Consumption (C):

As can be seen from the above chart, India's household consumption as a percentage of GDP in 2018 is approximately 60%. From the highs of 87% in 1960, it has come down to 60%.

• Investment (I):

As can be seen from the above chart, India's Investment as a percentage of GDP is approximately 27.8% in Quarter 3, 2019 (July - September 2019). Investment as a percentage of GDP is hovering below 30% since 2014. Investment as a percentage of GDP was highest in 2008.

• Government Spending (G):

As can be seen from the above chart, government spending as a percentage of GDP fluctuates between 11 - 12%. In 2018, government spending as a percentage of GDP was 11.23%. The highest number recorded in recent history was in 2000 when government spending as a percentage of GDP was 12.18%.

• Net Exports (X):

Net Exports X = Exports - Imports. Therefore, let's assess exports as well as imports individually.

Exports as a percentage of GDP

As can be seen from the above chart, the exports as a percentage of GDP were 19.74% in 2018. Exports as a percentage of GDP are falling since 2013.

Imports as a percentage of GDP

As can be seen from the above chart, the imports as a percentage of GDP were 23.64% in 2018. Imports as a percentage of GDP have fallen since 2012.


Therefore, having gathered all the data, now, let us do the simple calculations for the year 2018.

E = C + I + G + X
E = 59.39 + 31.31 + 11.23 + (19.74 - 23.64)


We can do this simple calculation for any particular year. The results for 2019 are more or less along the same line.

Therefore, let us now come back to the question 'What will be the effect of the coronavirus on the already slowing Indian economy'? or 'Are global factors negatively impacting the Indian economy'? or 'Is a recession coming'? All these questions are loosely talked about on various forums without looking at the facts.

And the fact of the matter is India's net exports (X=Exports-Imports) are negative or at most they can be neutral. In other words, India is a net importer country.

Therefore, the question that shall be assessed is how will global factors impact India's economy when we are a net importer country?

The impact of Coronavirus on India's exports will be negligible as India's 3 biggest exports destination are the USA, European Union, and UAE. China comes in 4th position.

The impact of Coronavirus on India's imports will be felt for some time as India's largest importing partner is China. And India imports a variety of manufactured goods from China.

But if analyzed with a deep concentration, wouldn't this have been an opportunity for India to build its manufacturing capabilities? Rising wages in China for many years and now the outbreak of Coronavirus in China should have been an opportunity for India instead of the threat. Since India's trade deficit with China is in excess of 60 billion US$. Wouldn't this have been an ideal opportunity for India to get its act together and focus on the manufacturing sector? Shouldn't the Make in India program have resulted in India becoming a net exporter country instead of the net importer country?

Therefore, as per the numbers, it is clearly evident that since India is a net importer country, the impact of Coronavirus or any other global factors shouldn't have ideally slowed down the Indian economy.

The slowdown in the Indian economy is more internal. The charts clearly show that. India's Consumption (C), as well as Investment (I), are falling consistently. And India's Consumption, as well as Investment, roughly constitute 90% of India's GDP. And when these 2 parameters are falling, surely, the economic growth will come down as well. And that is where the problem lies.

Therefore, instead of blaming the Coronavirus or other global factors, we should internalize the reasons for the slowdown. We should internalize and assess why Consumption, as well as Investment rates, are falling in India.

Coronavirus and other global factors should have become our opportunity instead of the threat. However, since we haven't focused on building our manufacturing capabilities especially bottom-up manufacturing capabilities, we are feeling threatened by Coronavirus and other global factors. It's still not late, we can turn this into an opportunity provided we build our manufacturing sector. It is the ideal time for India to become a net exporter country instead of the net importer country. Problems in China should not become a problem for us, instead, they should become an opportunity for us.