The Battle of India’s and China’s Consumers
Where exactly is the battle for supremacy between India and China going to be fought? Turns out that the next big comparison between the two Asian giants will be in consumer spending. Takshashila’s Amit Kumar took a deep look at India and China and how consumer spending impacts their respective economies, and what it means in the larger scheme of the universe.
Amit’s paper reveals that India’s consumption figures are disproportionately higher than China’s for the size of its economy. It also finds that a large consumer market is not a first-order factor in influencing foreign investments in a country. Nevertheless, it can significantly influence the lucrativeness of a country if the first and second-order factors cease to be a differentiating factor among India’s competitors.
The document is important — and fascinating — because of its deep insight into the relationship between consumer spending and growth projections. Amit writes:
“Together, by 2030, India and China will add over half a billion new consumers, representing 55 per cent of the global total. While India’s consumer size is rising at a brisk pace of 6.5 percent, the rate at which China is likely to add consumers to its economy is declining. Yet, in absolute numbers, China will continue to boast the largest consumer base until at least the next decade, allowing it to become the first-ever country with a billion-plus consumer class by 2026-27.”
Well, what does all of this mean, then?
“A few insights become noteworthy here. To begin with, given consumption powers most of India’s GDP as compared to China, the former does not depend heavily on the external market to keep its economy running as against the latter. Alternatively, it also means that a potential opportunity for India exists to exploit the export market since India’s net export contribution to its GDP is negative. On the other hand, given that China is a largely export-driven economy with low domestic consumption levels, its ability to turn inwards in the event of a worsening of the external market is limited compared to India. The consequences of this are already playing out for China.”
There is a lot more of where this came from. For the full study of India’s and China’s geoconsumerism, head out here.
Why Capping of Water Prices is Anti-Poor
The Bengaluru water crisis has brought to the fore the age-old question of the pricing of this precious natural resource. Anupam Manur, professor of economics at Takshashila, says that water is criminally underpriced in Indian cities, and this low pricing, counter-intuitively, is anti-poor. In his well-argued op-ed for Moneycontrol.com, Anupam writes:
“The difference between the cost of supplying and the price charged is made up through public funds. Every single litre of water consumed is subsidised through taxpayer money. Since there is a per litre subsidy, the higher the water consumption, the greater the subsidy from the government. It should also be apparent that the rich consume more water than the poor. The poor might consume water for activities such as drinking, cooking, and bathing, the rich will use water for watering their lawns and cleaning their cars. The aforementioned household consuming 15,600 litres gets a subsidy of roughly Rs 12,912 – 16,656 per year. Since taxes are paid by everybody, this is a bizarre redistribution of resources to the rich.”
And then, there are serious consequences such as pipeline leakages, theft and appropriation, water contamination, and unreliable supply.
How do we then ensure that an important city like Bengaluru, which is not blessed by an immediate source of water, can get adequate supply. How do we not mismanage our resource?
Read all about it in Anupam piece here.
The Secret Sauce to India’s Semiconductor Gains is a Right Policy Mix
On February 29, the Indian government approved three semiconductor units worth ₹1.26 lakh crore, including a fabrication plant by Tata Electronics Private Limited (TEPL) in partnership with Taiwan’s Powerchip Semiconductor Manufacturing Corporation (PSMC) in Dholera. The other two units include Assembly Testing Marking & Packaging (ATMP) plants to be set up by Tata Semiconductor Assembly and Test Private Limited (TSAT) in Morigaon and CG Powers in Sanand.
The Cabinet’s clearance of the three projects demonstrates its commitment to integration into the semiconductor Global Value Chain (GVC). The hitherto hesitant private sector has also exhibited the resolve to venture into an unfamiliar manufacturing segment that hasn't historically been India’s forte. Together with the US-headquartered Micron’s ATMP unit in Gujarat, these announcements herald a new era in India's semiconductor strategy.
So, now what?
Amit Kumar and Satya S Sahu write:
“This development is a culmination of geopolitical and geoeconomic consequences. China’s significant presence in the fabrication of mature nodes and the ATMP segment of the semiconductor supply chain amidst the ongoing US-China tech war and the pandemic-induced supply chain disruptions in 2020-21 has propelled the world to seek diversification.”
With ‘China+1’ at the core of this de-risking strategy, India has emerged as one of the preferable alternatives. Its initial success in attracting dominant players in the electronics and semiconductors GVC will likely trigger a "herd mentality" process, where others also favourably evaluate the country to expand their operation.
The authors argue that industrial policy alone is insufficient to foster a thriving semiconductor industry.
“Effective trade policies are equally crucial. The current protectionist stance, characterised by increasing tariffs, contradicts the aims of the semiconductor industry's integration into GVCs.”
Then, there is policy and regulatory certainty, “the linchpin for attracting investment.” They write,
“Predictable and transparent policy is supremely important for an immensely capital-intensive industry where upfront investments will only begin to see returns after three or four years when the first chips begin to roll out.”
Labour regulations present another area for refinement, particularly considering the unique operational requirements of semiconductor manufacturing, such as long shifts in clean rooms.
“Finally, India must also double down on its comparative advantage in chip design. India already plays host to top fabless semiconductor design firms such as Intel and Qualcomm, of which Indian engineers are an indispensable part.”
Read their full op-ed here.
China-Taiwan Tensions and India’s Response
In the past few years, the China-Taiwan cross-Straits relationship has witnessed rising tensions. There now exist fundamental faultlines in the cross-Straits relationship, which may create an escalatory ladder leading to an eventual conflict scenario. Such a scenario shall endanger the interests of not just parties directly involved, such as the US, China and Taiwan, but also other countries around the world.
Anushka Saxena, in a column for Moneycontrol, presents a three-part solution that could be considered by the two parties.
1. Is Taiwan A ‘State’?
We need to debate the merits of China’s claim of ‘Non-Interference’ based on the assumption that the Taiwan question is “purely an internal matter”. A basic reading of the 1933 ‘Montevideo Convention on the Rights and Duties of States’ indicates that Taiwan’s case unwaveringly aligns with three criteria of possessing statehood – a defined territory, a permanent population of about 23 million people, and a government elected by said people.
2. Legality of Operating in the Taiwan Straits
If in the event of a conflict, Chinese operations in the Taiwan Straits disrupt a foreign State’s right of passage, it can be contested under Article 56 of the UNCLOS, which gives China the right to only explore, exploit, manage living and non-living resources, and conduct scientific research in its Exclusive Economic Zone.
3. An ICJ Advisory Opinion on ‘The Taiwan Question’
The International Court of Justice, the law-administering and justice-dispensing arm of the UN, issues by special provision ‘Advisory Opinions’ on controversial and contested questions of international law, thereby clarifying unsettled questions. Even though they are non-binding in nature, over time, they gain significant legal weight.
These are the larger questions, of course. For a full understanding what they mean for India, head on to the column page here.
And Price Caps on Medical Rates Can Be Counterproductive, Too
Anupam Manur and Shrikrishna Upadhyaya have presented a strong argument against the recent Supreme Court decision on fixing medical rates.
Because of India’s complex public-private healthcare system, it is the poor who may end up losing when price caps are introduced.
“Imposing price caps at this juncture destroys incentives for establishing new hospitals, thereby creating further shortages of facilities and making medical treatment more expensive than now. A hospital is unlikely to offer a particular medical service unless it is profitable within the rates set by the government or is likely to offer it by reducing the quality of service, both of which have far worse consequences for the patient. In the face of absent competition, the incumbent hospitals will gain more market power and can abuse it to the detriment of the patients.”
Read their column and full argument here. You can also listen to an illuminating discussion on this topic in this episode of All Things Policy here.
Private sector role in India’s space revolution
The Government of India amended the FDI policy for the space sector on 5 March 2024. This has liberalised thresholds for various space-related activities. This change comes on the heels of a slew of space reforms by the government that began in 2020. The reforms created a fertile ground for the cropping up of many space start-ups in the country but did not address their funding needs. While the FDI reforms have the potential to address this deficiency, they are insufficient in a vacuum. India’s share of the global space economy is $8 billion, and the government aims for a five-fold increase by 2040. To achieve this, the government will have to place larger bets.
What exactly are these bets?
This is the central question asked by Ashwin Prasad in his column for FirstPost.
“While the FDI reforms help create a better policy environment, the Indian industry must still compete globally to attract investments. To achieve this, the government must help build capabilities through technology transfers. It must also create demand to which the private space sector can respond.”
You can read his full piece here.
Wait, There’s More
‘We, The Citizens’, the latest book by Takshashila’s Anupam Manur, Khyati Pathak and Pranay Kotasthane continues to fly off the shelves at book stores. Here’s a sneak preview of what Pranay thinks are some of the most important parts of the book.
Our favourite All Things Policy episode of the week is this chat between Carl Jaison and Sudhanshu Kaushik, author of ‘The Future is Ours: The Political Promise of India’s Youth’. Sudhanshu is an international youth activist and the founder of the Young India Foundation (YIF). With a focus on youth empowerment, the highlights of his work at YIF included initiatives registering over 2.5 million youth voters, lobbying with over 200 sitting MPs and five state governments to decrease the age to contest elections as an MP/MLA and building the Centre for Youth Policy. Listen to their podcast here.
Meanwhile, if you ever wondered what the students of Takshashila’s courses think of them, here’s your answer!
And we have saved the best for last. What is the connection between India’s thumping win over England in the recent Test series and climate change? The answer is here!
That’s all for this week. Take care!