During the 9-year period, 2012 to 2021, the Pakistani rupee depreciated by 88% [counting from its peak at 170] and is currently placed at PKR 154 per dollar.
What does this mean in labor costs? If a Pakistani worker cost $ 4 per day in 2012, today the cost of the same worker for a foreign company is $ 2.12.
Compared with India during the same period, Pakistani dollar wages have halved. How then can Indian companies compete with Pakistani or Bangladeshi exporters in international markets?
It should come as no surprise then that while Pakistani and Bangladeshi exports have risen sharply over the past decade, India’s export growth is close to zero. Literally Indian labor, except in highly skilled fields like software services, has been shut out of the market.
Indian wages have also fallen slightly following the compression of the MNERGA. But because Modi’s misplaced nationalism has resulted in an overvaluation of the INR against the currencies of our competitors, dollar wages are twice as high in India as in Pakistan, and thus Pakistani exports of cotton, yarn. cotton, etc.
CHINA’S TRADE STRATEGY
Let us now turn to China’s trade strategy to end Indian exporters in commodity markets. Remember that the Chinese believe in all-out war where anything that can be armed against an opponent is implemented. China and Pakistan are realizing that if India continues to grow at 8-10% per year for 20 years or so, India will far exceed its capacity to contain it. Trade is the best way to hamper India’s potential growth.
China, more than us, realizes the potential of a growing Indian economy for its position as a preeminent power in Asia and a world power in the world. There is no concealment of this reality. Since China will do everything to avoid open war with a major power like India, [such a war would bleed it dry, with or without help for India from the West] because it would put an end to its global ambitions, China therefore adopted a strategy of containment of India, not so much by the strategy of the “pearl necklace”, as by the crushing of the Indian trade and economic growth.
This has an impact on India in two ways. Directly, this harms its growth, which keeps its defense spending in check. Indirectly, this decreases the attractiveness of India as a part of the world market that can boost world exports. All these strategies, cutting salami at the border, confinement like the “pearl necklace” or trade are carefully kept below the threshold which invites real reprisals from the friends of India in the QUAD. The Chinese are masters in these low visibility but long term strategies.
So what have the Chinese done to weaken India’s export sector and
Chinese companies, with great coordination and support from its government, have systematically targeted local Indian manufacturing industries such as power plants and equipment, pharmaceutical companies making API molecules, and the unorganized sector in low-cost products. added value like aggarbattis, plastic toys, t-shirts, etc. with predatory price attacks. Most Indian companies do not have the capital and / or the political clout to trigger state defenses against such predatory pricing strategies. They also don’t have the depth of capital to overcome them. Therefore, they fall back quickly and Chinese companies are then able to exploit the market with normal prices.
Large swathes of India’s plastics, toys, low-value consumer goods and low-end textiles industries have been wiped out in India by such business strategies. The loss of these small businesses is the reason for no new job creation since 2014.
On the other hand, Modi’s misplaced bias against power supplies has also led companies such as BHEL to go after artificial Chinese competition which may have offered lower prices for a while in order to conquer the markets in India.
China has added another thread to its strategy of weakening Indian exports by offering zero-duty access to exports from our neighbors like Pakistan, while Indian products are subject to normal tariffs.
Look at an industry like cotton yarn, a significant part of our exports. Pakistan and India have similar competitive advantages in the sector as cotton producers and yarn spinners [real yarns, not the Modi variety]. But in China Pakistani yarn enters the market at zero duty while Indian yarn is excluded for price reasons due to higher duties. Add to this that wages in Pakistan are half of those in India. Thus, Pakistani spinners are having a blast selling better than India in China. China itself is a major exporter of textiles.
The importance of this strategy of prioritizing our competitors, in particular our neighbors over us, cannot be lost on any strategic expert. So it shouldn’t surprise us if our neighbors happily board the Chinese train to share the windfall at our expense.
What could be a smarter Chinese ploy?
Remember, this is a no-cost strategy for China, given that India imports $ 75 billion worth of goods from China while exports barely exceed $ 15 billion, leaving a trade deficit. of $ 60 billion per year, which should be interpreted as an annual tribute paid to a hegemon. .
By diverting imports from India to Pakistan, China transfers wealth to Pakistan from India at no cost to itself, thus strengthening its influence in Pakistan and reducing India’s influence in the neighborhood. Do we have a counter? I have yet to see any evidence that our strategic experts are even aware of such a Chinese strategy. Modi’s foreign policy is rather ignorant and inconsistent not only in economics and commerce, but also in the more traditional areas that make up the CNP.
India could also have used its public sector to thwart China’s decimation of our production [example BHEL] but crony capitalism stands in the way. I will examine in the next article how Modi’s domestic policies – economic and political – knotted Indian foreign policy, making a coherent response to the challenges of China and Pakistan impossible.
(The author is a consultant and independent trader in the financial markets. Views are personal)