Good morning. The aftermath of Covid-19 and China’s suffering economy gave many countries, including India, hope that big companies would look elsewhere to manufacture. While it was known for a while that there hadn’t been a significant shift to India because of it, the recent rally of China’s market is yet another indication that China-plus-one is now a fading dream. Read on to know more. 

In other news, we have a new weekly column by Berges Malu called ‘The Swipe’. Malu is a public policy professional who loves digging out deals. This week he has written about the hype around credit card reward points. 

Meanwhile, India has launched an electric vehicle (EV) subsidy scheme. 

Also, we plan to publish some of the feedback that we have received from our readers in a new section called Core Inbox on alternate Fridays. You can write to us at [email protected]. 

THE TAKE

The China+1 Manufacturing Story Now Seems To Be A Fading Dream

In July, India’s commerce and industry minister Piyush Goyal said in a virtual interaction with the Indian diaspora in the United States that a China-plus-one and an anywhere-but-China (ABC) thinking in the developed world was encouraging people to look at India. This was apart from India’s efforts to attract manufacturers to the country, The Economic Times reported the minister as saying. 

Last week Goyal told The Times Of India that India's manufacturing prowess was driven by its own competitive advantages, and not by reliance on any China-plus-one strategy. He was speaking in the context of a decade of India’s own ‘Make In India’ efforts.

"At that time, there was no China-plus one, or no anti-China mood. We've been successful in all of this, despite two wars, despite two years lost in Covid, we've achieved all of the above," the minister said.

This seems to be a shift in policy. Goyal however was only reflecting what industry has been saying for some time now.  India’s China-plus-one strategy of attracting global companies to move supply chains to India has not really worked, at least to the extent we thought it would or hoped. To be fair, this is not for lack of trying. 

The pendulum has only swung further away. A report by the Delhi-based Global Trade Research Institute a few months ago pointed out that imports from China have been consistently rising, from $70 billion in 2018-19 or five years ago to around $101 billion last year. India’s total imports last year were around $677 billion of which around $101 billion came from China, or almost 15%. India’s own exports to China were holding around $16 billion for the last five years.

The numbers get much starker as you dive in. In some sectors like electronics, telecom and electrical products, 38% of India’s imports came from China. In machinery, 40% of products came from China. In chemicals and pharmaceutical imports, some 29% came from China.  Despite India’s myriad efforts to boost manufacturing, including production linked incentives and other subsidies, China’s stake in the country’s product economy is obviously increasing.

On the other hand, for the last few years, China’s economy has been under pressure, including slowing demand. There have also been significant geopolitical shifts, thanks to countries like the US stepping up tariffs against China and encouraging multinationals to develop alternative sourcing strategies. This gave hope to other countries, including India, that manufacturing could be moved out of China, as the trade minister’s July statement suggested.

Now it looks like China might be back in the game. On Monday, Chinese stocks swept to their biggest single-day gains in 16 years. The CSI300 blue-chip index, China’s benchmark stock index, is now up nearly 30% from its February bottom, which by some market definitions suggests it is in a bull market. The rally in Chinese stocks has come after Beijing announced aggressive stimulus measures last week to pull up its flailing economy. These ranged from outside rate cuts to fiscal support, Reuters said.

The People's Bank of China's (PBOC) also introduced two fresh tools to shore up the stock markets, pushing up stocks which had been stagnant for several years. "It's really a big turnaround, the policies are so intensive, we have never seen such clear instruction to stop housing prices declining and support the stock market," Dickie Wong, executive director of research at Kingston Securities, told Reuters.

There is obviously some understanding already in India that while manufacturing will grow in India for various reasons, the China factor seems to be receding. Lighting up India’s manufacturing sector is not an easy task, regardless of which government claims what. The problems plaguing manufacturing investment and expansion have been around for long and range from high costs including land, labour and capital to weak infrastructure and of course cumbersome laws.

There are several manufacturing successes in India, domestic and export oriented but it is not clearly enough, including to absorb more surplus labour.  The one factor where India could focus on is to make it cheaper and more competitive to build locally rather than by erecting tariff walls as we have done in the last decade.

Ten years ago, average tariffs were 13%, today they are 18%, amongst the highest in the world and double of countries like China and Vietnam. Reducing tariffs — since exports also contain imported raw materials — is not the only approach to overall manufacturing growth but one that we need to revisit with some urgency.

MESSAGE FROM OUR PARTNER

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THE SWIPE

Are Premium Credit Cards Really Worth The Hype?

Speak to your credit card salesperson and they will promise you the sun and the moon as benefits of holding a premium credit card. While the promises of benefits are many, the reality is a bit different. 

Over the past decade, I’ve held numerous credit cards from various banks and honestly, most of their features have been largely irrelevant (pun intended). Many come with fine print or offer perks that you might use once in a blue moon—perhaps once every three years at most.

Credit cards have become more democratised in recent times, with premium cards offering increasingly complex reward structures. While it might be enticing to have cards like the Axis Magnus in the short term, their long-term value is often minimal. In fact, the luxurious perks many premium cards offer can quickly become expensive when you consider the spending required to unlock those benefits.

CO:RELATION

Improving Rural Demand?

Private final consumption expenditure (PFCE) growth matters to India’s consumption-led economy. The Reserve Bank of India’s monthly bulletin declared that the PFCE growth accelerated to a seven-quarter high of 7.4% in the first quarter of 2024-25. That was attributed to resilient urban demand and improving rural demand conditions. In a recent note, India Ratings, an affiliate of global ratings agency FITCH, predicts 7.4% for the full year 2024-25. 

The optimism comes from the declining inflation and a normal monsoon this year. The agency observed that the real rural wage growth for agricultural and non-agricultural activities rose to a 13-month high in July 2024, while urban wage growth rose to a 10-month high. The agency said that the prospects of demand for consumption from households belonging to the lower income strata of the population should go up. While companies in consumer durables were already witnessing a demand boost, non-durable consumer companies have seen sluggish growth thus far. The Nifty FMCG index has underperformed the Nifty 50 in 2024 so far. That should change with rural and urban wages getting a boost.

CORE NUMBER

Rs 10,900 crore

This is the outlay of the EV adoption drive that the Indian government launched on Monday. It will be implemented from October 1 this year to March 31, 2024. This scheme, named PM E-Drive, will offer subsidies for electric two-wheelers, three-wheelers and other electric vehicles. It will also support the setting up of charging infrastructure which has been lagging in India. The scheme comes at a time when industry leaders have been calling for one to boost adoption.

FROM THE PERIPHERY

— Government data released on Monday showed that growth in production in the core eight sectors in India contracted 1.8% in August. The core infrastructure sectors include cement, coal, crude oil, electricity, fertilisers, natural gas, refinery products and steel. This slowdown is likely to affect manufacturing in India. The growth stood at 6.1% in July. The output of these sectors in the first five months of this financial year rose 4.6%, much less than the 8% it rose during the same time last year. 

—🤝 Fintech firm BharatPe announced a settlement in the 2023 case with former co-founder Ashneer Grover, who will no longer be involved with the company. The deal includes the transfer of some of Grover's shares to the Resilient Growth Trust, with the rest managed by his family trust. Both parties agreed to cease legal action. The case stems from BharatPe's allegations that Grover and his family caused Rs 81.3 crore in losses through fraudulent transactions. These include improper payments to fake consultants and inflated costs from connected vendors. Both parties will not pursue legal action. 

—💰 A joint survey by DBS Bank India and rating agency CRISIL reveals that 65% of self-employed women in Indian metros haven’t taken a business loan, with 39% relying on personal savings, The Business Standard reported. Concerns about high interest rates and sufficient personal funds deter loans for 26% and 25% of respondents, respectively. Women often use personal assets like property (28%) and gold (25%) as collateral. Despite rising digital payments, there is limited awareness of government schemes, with 24% unaware and 34% not utilising any.

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