QUAD of opportunities for Indian manufacturing sector

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QUAD PIC1
QUAD PIC1

Indian Government will have to restructure laws to benefit the Indian manufacturing industry take a quantum leap and collaborate with QUAD countries. Indian companies need to be competitive to take on the giants of China. Urgent reforms are required!

Recent developments and strengthening of relationships among QUAD nations – US, India, Australia and Japan to counter the economic might of China may just be the beginning of an opportunity to make India a strong manufacturing base for the world.

But to succeed, the Indian government will have to take strong steps to support the manufacturing industry.

To attract massive investments and make India a large manufacturing base the government has to reform its industrial policy. Land and electricity costs are high in India. The capital investment cost is high and in many cases, it goes up to 15 per cent. There is a zigzag of more than 50 plus labour laws existing at the state and central levels. Though there was a reduction in the corporate tax, India is not attracting massive investment in the manufacturing sector, key for India’s growth and addressing its unemployment rate too.

In December 2020, there was labour unrest at the iPhone manufacturing facility of Wistron near Bangalore. The 2,000 strong workers turned violent and vandalised the factory and looted goods in retaliation against alleged underpay resulting in huge losses to the company. One wonders why there is no proper mechanism to solve such disputes despite the many labour laws. 

Workers went on a rampage at iPhone factory Bangalore demanding higher pay. Such incidents do leave a scar

Interestingly, if the labour union wanted to go on strike in Communist China it had to give six-month advance notice. They won’t allow disturbance in the supply chain in China. Before India can hope to grow as a player in the QUAD scheme of things, there is a lot of homework to be done to address the issues and rectify loopholes.

The Quadrilateral Security Dialogue or QUAD has got some quality momentum almost lying dormant for 14-years, recently; after its first face-to-face summit by its founding members – the United States, India, Japan and Australia — hosted by US President Joe Biden, which is likely to make it a powerful international grouping of nations from a just fringe networked alliance.

Emphasizing the importance of Indo-Pacific, the current strategic centre of the US, after the QUAD meet, a joint statement said in an increasingly complex regional security regime, the QUAD nations recommitted their partnership for a “free and open Indo-Pacific.” The Quad also committed its anti-covid vaccination drive financed by the group.

In his recent trip to the US, Prime Minister Modi met with US President Biden, Australian Prime Minister Scott Morrison, and then Japanese Prime Minister Yoshihide Suga (Image Courtesy: Twitter @narendramodi)

Started as a diplomatic and military initiative 14 years ago by four democratic countries to prevent China’s aggressive hegemonic approach, the military threat towards its small neighbours and its over-ambitious design to dominate the South China Sea, in which one-third of global maritime trade passes through, for territorial and energy gains.

Originally initiated in 2007 and re-established in 2017, the new inter-governmental security grouping’s focus is incrementally growing from Indo-Pacific to areas like science and technology, climate change and cyber security.

China’s shady role in Covid -19 epidemic and its insufficient disclosure made things much worse for the international community. It crippled the global economy severely and killed millions of people. Despite all of this, the Middle Kingdom was the only large economy to grow under the authoritarian communist regime.  All other economies were in a free fall. Originated in China, the epidemic is expected to lose nearly $8.5 trillion worth of output globally over two years, wiping out all gains of the last four years. All these factors further helped to rejuvenate the sleeping QUAD.

The QUAD grouping, also known as Asia’s NATO, has a combined GDP of $30.97 trillion and a combined defence budget of $ 926.3 billion in 2020.  This combination makes it a formidable force that can curb China’s aggressive and hawkish attitude and actions.

According to United Nations data, China accounted for 28.7 per cent of global manufacturing output in 2019. That is 10 percentage points higher than the US, which was dominating the global manufacturing space until 2010.  This phenomenal economic growth and dominance in the global supply chain put China in an enviable position in the global trade and freedom to start flexing its muscle.

China’s expansionist policy has failed to find a solution for the 70-year-old border dispute with India. After the skirmish at Galwan valley, the dispute further intensified and that provoked India to impose a ban on hundreds of Chinese apps, cancel some government contracts and put some unofficial trade restrictions on China. Despite this, Indo-China trade has increased by 62.7 per cent to $57.48 billion for the first six months of 2021.

China and the US had a prolonged trade war which is still going on. China is also in a trade dispute with Australia. China stopped coal imports from Australia. And China has had a historical and unforgettable grudge with Japan since imperial Japan’s Manchurian invasion and also has a disputed territorial issue. 

So, with this background, it was but natural for the US, India, Australia and Japan to come together and forge an alliance of its democracies against China.

Interestingly, the trade flow between China and these nations is intact and growing every year. It clearly shows China’s firm grip on the global supply chain that cannot be taken away with mere small talk.

The original members of the QUAD had recently initiated a QUAD Plus meet that included representatives from New Zealand, South Korea and Vietnam, that will further extend the Asian arc of the alliance. 

Even as the global scenario is witnessing several fast-paced changes, another group of Quad is emerging on the horizon roping in Middle Eastern countries. A new quadrilateral, which includes, India, Israel, the United Arab Emirates and the United States has been grouped to create a new geopolitical alliance of nations. This new Quad or Quad 2 conducted a“fruitful’ meeting on October 19, 2021. 

QUAD2.0: Foreign Ministers of India, US, Israel & UAE comes together to work on economic and global issues

The new grouping has been described as an international forum for economic cooperation and will focus on trade, technology cooperation, big data and maritime security with a scope of extending the synergies beyond governments. 

It is likely to be fast-tracked as it plans to form a committee of senior-level bureaucrats to take it forward. Presently, there are no further details of this new formation, which has two founding members of Quad and is expected to be merged with the original Quad.

Geopolitical analysts felt that if the Quad alliance consolidated with a formal treaty and working structure and gradually include other key nations from Asia, the alliance has the potential to rewrite the present geopolitical and economic order that will lead to arrest the Chinese arrogance, aggression, dominance, and hegemony.

Recently, Quad announced its plan to form a Quad Infrastructures Coordination Group to improve grouping’s infrastructure investment in developing countries. This signals the alliance’s commitment to developing large infrastructure projects in developing countries against China’s massive and ambitious Road and Belt Initiative.

It has also planned to secure a semiconductor supply chain and develop technologies for semiconductors, Artificial Intelligence and 5G development.  Further, plans are there to work on clean hydrogen partnership, green energy and space.  These are all with good intentions and design to arrest expected Chinese domination in these fields.

How did China react to the resurgent Quad? The Quad is “incapable of inflicting substantial harm to China.” Remember Mao Zedong thought Chinese “the atom bomb is a paper tiger” in 1946, well before the formation of the present Peoples Republic of China; but they acquired the paper tiger — became a nuclear power in 1964 with massive assistance from the Soviet Union. That’s how the Chinese work. It knows well that it is now a mighty economic power that cannot be challenged easily without arresting its growth dynamics. 

China knows that in the present form, Quad will not make much difference to its growing power. It is not challenging its economic might and dominance in the global supply chain. It is just a networked forum of nations without a formal treaty and its member nations have to protect their own interest.

China exported $2.51 trillion worth of goods around the globe in 2020, a 3.7 per cent growth against the previous year. China’s export to four QUAD nations is estimated at a whopping $715.4 billion, in other words, 28.48 per cent of Chinese exports to the QUAD nations.

India is having a great opportunity now than ever to bring in global manufacturers to set up their facility

The best way to take down China is to hit where it hurts most – its manufacturing prowess.  If the manufacturing is shifted to countries like India, then that will hurt China the most.  It is clear that the key to success for this geopolitical network is to convert it into a concrete treaty and extend the alliance into the economic sphere and challenge China’s global supply dominance.

But Indian manufacturing industry is facing structural deficiencies in the system said Promod Kumar Singhania,  President, Indian Council of Small Industries, Kolkata.

The government has assessed the reality and come out with a proper and workable single window system to address the weak links, that should revive our SMEs. Similarly, it has to stop flooding cheap products from neighbouring countries and remove outdated labour laws, he added.

Indian Industry, especially small and medium, is working in a high financial interest rate regime. Raw material cost is also high in India, said A Vijay Kumar, President, Federation of Andhra Pradesh Industry Associations, Hyderabad. Government policies are lopsided and favour late players. There is no coordination between the State government, Central government and banks. It has to be changed and the government must create proper policies to revive the Indian manufacturing sector, he said.

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