India Should Be Strategic in Luring Investment From Tariff-Plagued China
India is reported to be looking for ways it can capitalize on the U.S.-China trade war to its own economic benefit, with officials there considering the preferential tax rates and a tax holiday to attract companies eager to leave China in order to escape tariffs imposed by the U.S. on Chinese products. Specific industries targeted by Indian officials reportedly include footwear, toys, electric vehicles, and consumer appliances and electronics.
India should think strategically before simply throwing conventional incentives – outright tax breaks, or even cash – at the problem. Vietnam and Malaysia, among other Asian neighbors, have attracted sizeable investment by deviating from protectionist policies.
- A study by the World Bank and Brookings concludes that Vietnam has “embraced trade liberalization with gusto” and “has complemented external liberalization with domestic reforms through deregulation and lowering the cost of doing business.”(https://www.brookings.edu/blog/future-development/2018/04/17/vietnams-manufacturing-miracle-lessons-for-developing-countries/)
- A December 2018 Asia Development Bank analysis found that India is likely to benefit the least of major Asian economies in a “full-blown” U.S.-China trade war, in which Vietnamese exports are poised to grow 7.6% versus 1.9% for Malaysia and 0.7% for India. (https://www.adb.org/sites/default/files/publication/471496/ewp-566-impact-trade-conflict-asia.pdf)
India should look to employ no-cost incentives – primarily, reduction of the many market access barriers that continue to impede foreign investment there.
The very barriers that AFTI is working so hard to break down are an impediment to both new foreigninvestments and to the transfer into India of investments currently in China. The right combination of market-opening policies could vastly improve India’s standing with the U.S. while also seizing on this new opportunity to gain a better economic footing against the Chinese.