It is no secret that India wants to replace China as the world's manufacturing hub. According to an analysis by Wall Street**, the next few years will be a critical time for India to realize this ambition, but it will depend on how quickly the South Asian giant can improve its dilapidated and inefficient infrastructure.
India wants to compete with China, the development of infrastructure is the key", "Wall Street**" published an article with this title on December 28, local time, in order to attract funds into the domestic emerging manufacturing industry, New Delhi is beginning to learn from China's infrastructure model, but due to the high level of debt, India's infrastructure development must also rely on more private sector stable investment, and it is not easy to find a development path suitable for India.
On April 25, 2023 local time, traffic jam on the Delhi-Jaipur highway in Gurgaon, India. **Visual China.
After decades of failure, Apple, Foxconn and other companies are leading a "manufacturing renaissance" in India, the report said. In the fiscal year ending in March 2018, India was also an importer of smartphones, with imports exceeding $2 billion. In the last fiscal year, India has become a net exporter of smartphones, with exports worth $11 billion. According to Macquarie, an investment bank, about half of India's smartphone exports are made up of Apple products.
However, more manufacturers are taking a wait-and-see approach to the India-centric "China+1" chain. India's infrastructure is very weak, with potholes on the roads and frequent train accidents, which has put many investors off. Wall Street** also wrote in September that India's infrastructure development started from a very low starting point and had been underinvested for decades, plagued by old railways, poor roads and unstable electricity**.
In China, companies can build factories almost anywhere, and it is not difficult to transport products from A to B. But in India, it's a different story. "National Public Radio (NPR) once pointed out in a report that only 5% of India's roads are highways, and about 40% of roads are dirt roads. As a federal state, India's fragmented political system also makes it more difficult to coordinate transport links between states. If one side has an opinion, construction work may be halted at the junction, and it may take years to resolve the disagreement.
In the manufacturing industry, it is important to ensure the smooth flow of traffic and transportation, which is not only related to the transportation of parts and products, but also the quality control of production by enterprises also needs to go to the factory for on-site supervision and inspection. Before the pandemic, Apple had to buy at least 50 business-class tickets from San Francisco to Shanghai every day, and the company spent more than 1$500 million.
On October 27, 2023 local time, in Mumbai, India, several trains were canceled for the construction of Line 6 connecting Khar Road and Goregaon Station, and the Andri Railway Station was crowded. **Visual China.
To this end, India is making great efforts to strengthen infrastructure development. Macquarie data shows that India's national highways are being built at six times the pace between 2002 and 2010, the average speed of freight trains has increased by more than 50 per cent over the past two years, and vessel waiting times at ports have decreased by 80 per cent since 2015. According to consulting firm G**EKAL, India's road network has increased by about 40 per cent in the past decade to 6.3 million km, making it the third largest in the world.
In Wall Street**'s view, India is starting to learn from China's infrastructure model, but there is still a long way to go. China's gross fixed capital formation-to-GDP ratio peaked at 45 percent in 2009, compared with 25 percent in 1990, according to investment bank Bernstein. *Funding is an important factor. India's gross fixed capital formation-to-GDP ratio is now around 30 percent, up from just over 20 percent in the first decade of the century, according to Bernstein's data, with private and household contributions accounting for the lion's share.
India** plans to invest Rs 100 trillion in infrastructure sector in 2019-2023Invest Rs 50 trillion in the sector of railway infrastructure in 2018-2030. According to India's National Infrastructure Pipeline Programme (NIP), Rs 111 trillion will be invested in infrastructure projects from 2020-2025, with about 70 per cent going to energy, road, rail and urban projects.
*InvestIndia, the funded, not-for-profit Indian investment agency, said it expects most of the funding to come from ** and states**, while it expects the private sector to provide about 22 per cent of the funding. Wall Street** argues that while India may want to increase public investment in infrastructure, it may not be able to reach China's level.
India's public debt-to-GDP ratio is about 85 percent, second only to Brazil among emerging economies. The International Monetary Fund (IMF) warned last week that India's debt-to-GDP ratio could exceed 100% in the medium term. According to the report, this has limited fiscal space for India** to expand spending indefinitely.
Wall Street**
The report mentions that India has not managed large infrastructure projects well in the past, and although some measures have been taken to mitigate delays and cost overruns by streamlining administrative procedures, official data in October showed that nearly half of the 1,788 large-scale infrastructure projects overseen by *** are behind schedule, with cost overruns of about 17%.
According to the World Bank, manufacturing accounted for just 13 percent of India's GDP last year, compared with 28 percent for China. Macquarie noted that logistics costs account for 18 to 20 percent of total production costs in India, compared to 8 to 10 percent in China.
Has India's infrastructure improved significantly?The answer is yes. Is India's infrastructure adequate to meet its ambitions?The answer is no. India's infrastructure is still under construction. Arup Raha, head of Asian economics at Oxford Economics, once said of India's infrastructure achievements.
Indian-born journalist Megha Mandia, who wrote the story, suggested that India needs to do more to attract private sector investors. The "short-selling turmoil" of Indian infrastructure giant Adani Group earlier this year may have complicated the problem, but more infrastructure funding could also help stabilize private sector investment by removing key logistics bottlenecks and sharing financial risks.
In the early 2000s, India introduced a public-private-partnership (PPP) model that provided targeted implicit and explicit subsidies to infrastructure investors to incentivize private participation. However, the PPP model has not been sustained due to the proliferation of non-performing assets in public sector banks, the bankruptcy of private companies, and the rampant corruption and change of the world.
In 2014, the BJP-led National League for Democracy (NLD) came to power, implicitly endorsing the policy priorities of its predecessor and identifying infrastructure as a key bottleneck. However, the new ** revised the specific policy of the PPP model, assigning most of the infrastructure projects such as roads, ports, airports, energy and communications to a small number of selected industrial enterprises, and implementing the "national leading enterprise" model, that is, selecting several large enterprise groups to implement infrastructure development priorities.
According to the Indian Express, infrastructure projects often take a long time to start generating revenues, and the returns are low, and the "national leading enterprise" model helps the enterprise group to achieve its target total return, while keeping the negative cash flow items on the books, and the leading enterprise's connection with ** also creates a competitive advantage for it to fight for contracts. In addition, by undertaking cash-rich projects, leading companies can use these entities as collateral to borrow from external credit markets, reducing the cost of financing other projects and freeing up domestic savings for private investment.
However, there are four glaring problems with this model. Amartya Lahiri, a professor of economics at the University of British Columbia, pointed out that first, the direct link between leading enterprise groups and ** policies may lead the market and regulators to believe that these companies are invulnerable, causing market volatility, untimely detection of problems, and spillover of industry problems into systemic shocks. The Adani Group's recent woes highlight this problem.
Second, the "market concentration" encouraged by this model is often detrimental to efficiency and productivity development at the economic level as a whole. Thirdly, the longer it takes for a project to generate a large amount of cash flow, the more the state will need to provide additional cash flow to the leading companies, or cause the state to become an "industrial oligarchy". Finally, India cannot afford an uneven playing field in terms of market access and selective regulatory permissiveness that could be a serious disincentive for foreign investors.
The deeper problem, according to Rahiri, is that infrastructure is the solution to India's aspirations for economic growth. It is generally accepted that once infrastructure such as ports, roads, electricity, etc. is in place, private investment will follow. However, this assumption is problematic based on the experience of the infrastructure investment boom of the early 2000s. The problem in the power sector is not power generation, but the inability of distribution companies to recover their payments, i.e. effective demand.
Accordingly, Rahiri writes: "India is at a turning point on its development path. India is betting on a development model based on a domestic demand-driven production structure, powered by hard and soft infrastructure that is highly concentrated in the hands of a few. If successful, India's model will be touted as the next generation of Asia, or a salutary cautionary tale for future generations. ”
This also seems to have something in common with the conclusions of the latest Wall Street article. "Catching up with China doesn't necessarily mean copying China's model exactly. "In order to achieve its manufacturing ambitions, India must find its own way to develop and upgrade its crumbling infrastructure." ”
*: Observer.com.