China Has A Solution To One Of Modi's Problems
Panos Mourdoukoutas , CONTRIBUTOR
Narendra Modi has a serious problem: his economic policies don’t create enough jobs to employ the country’s growing young labor force. And he needs to find a solution to the problem quickly, before the 2019 elections. Otherwise he will be history.
But like all of India’s problems, China claims to have solutions to its neighbor’s employment problem: Turn India into its backyard factory for labor intensive products.
That’s according to a recent Global Times editorial, which advises Modi to work together with China to develop labor intensive industries. “It would be best for Sino-Indian cooperation, for the time being, to be focused on labor-intensive and export-oriented industries, which could tap into India's abundant labor resources,” writes Mao Keji, researcher with the Pangoal Institution. “Considering both countries' comparative advantages, such cooperation may well relieve India's current trade deficit, and other issues such as overreliance on foreign capital and insufficient employment opportunities, while providing China with more avenues for growth. Industrialization is vital for India to become a global economic powerhouse, and China can benefit by playing an active role in this. Fortunately, both India and China now seem readier than ever to deepen bilateral cooperation in this aspect.”
What sort of cooperation? Some kind of “created in China, manufactured in India” relationship.
That’s the kind of cooperation that China desperately needs for a number of reasons. One of them is that rising internal labor costs has eroded its competitive advantage vis-à-vis countries like India and Vietnam.
Then there’s China’s need for new markets for products that face U.S. tariffs. And additionally, the need to get rid of its polluting industries, which have made life miserable for its citizens.
Does India need this cooperation?
There are advantages to having China manufacturing labor intensive products in India. Like the creation of job opportunities for India’s low skilled labor force, something Modi needs as he faces elections next year.
But there are disadvantages, too. The arrangement could raise China’s influence in India, nurture some kind of neo-imperialist relationship; and the move could compound the pollution problem in already polluted Indian cities.
That’s why India’s policy makers should take China’s advice with skepticism.
Meanwhile, there’s a better advice for Prime Minister Modi: spend less time abroad and more time at home. Because the gap between the country’s rich keep on growing bigger and bigger as he travels from Switzerland to China -- and Indians think they are worse off than they were three years ago.
That’s according to a Gallup survey, which finds a big decline in the percentage of Indians who rate their lives positively enough to rate it as "thriving" since Modi assumed office.
The survey findings provide a different picture from that which one gets when looking at India’s financial markets. In fact, they have been soaring, up close to 27.56% in the last two years.
Nonetheless, only 3% of Indians consider themselves thriving in 2017 compared to 14% in 2014 (see table 1 below).
Apparently, Modi’s policies that have helped the Indian economy grow have yet to touch the masses. Living Wage Family in India remains almost flat in the 17300-17400 INR/Month range over his tenure. Meanwhile, wages paid to low-skilled labor decreased to 10300 INR/Month in 2017 from 13300 INR/Month in 2014.