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Non-competitiveness: India’s Bane [Mains Articles]

Imports from China have curbed the capacity creation and resource utilization in India. This situation is not only, increasing unemployment but it’s taken a heavy toll on the economic revival of the country.
By IT's Mains Articles Team
December 17, 2019


  • Introduction
  • Advent of Industrialisation
  • China’s success
  • Free trade agreements: RCEP
  • Real loss to India
  • Conclusion

Non-competitiveness: India’s Bane

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The natural richness of Indian biodiversity made it a prized country for trade among Europeans. The value of Indian spices could be understood from the fact that the voyage of Christopher Columbus was financed to find a shorter sea route to India. The East India Company, too, was formed for trade. However, with the advent of Industrial Revolution in England, India lost to advancement in technology and innovation when traders started to reach global markets making huge profits.

Advent of Industrialisation


In Europe

  • India’s impoverishment began in the 19th Century when the industrial revolution started in England and in the world. At the same time, the East India Company completed its colonisation of India.
  • Industrialisation led the large-scale destruction of artisanal jobs, especially in textiles.
  • The thriving cities like Dhaka experienced depopulation and migration of population.
  • The situation was effectively described by the Indian writers in their economic writings at the end of the 19th and the early 20th Century which also provided for the solid intellectual foundation for Swadeshi and Khadi in the freedom struggle.

In America

  • The Civil War in the US in a bid to abolish slavery, led by the President Abraham Lincoln, resulted in the seceding of southern states as they wanted to continue with the practice of slavery.
  • There is an underlying economic dimension that is not so well known. The north-eastern states of the US had begun to industrialize. The import duties were imposed on manufactured goods coming in from Europe.
  • The southern states who were exporters of agricultural produce and preferred free trade had to pay more for manufactured goods. With the imposition of duties on imports, the terms of trade shifted against them. There was, therefore, an economic rationale behind Southern states decision to secede against the north.
  • Later, after World War-II, the US — as the leader of the West and the pre-eminent global industrial and intellectual power. promoted free trade.
  • This culminated as the WTO agreement in 1994 which ended the era where countries, after decolonisation, were trying to industrialise with infant industry protection, which had been used successfully in the past.

In East Asia

  • In the 20th Century, Japan industrialized and it began to colonies its neighbouring areas such as Korea and western China which created a larger captive market for its industrial goods. This was done by Japan following the example of England towards its policy for India.

China’s success

  • The biggest beneficiary of globalization of the last few decades has been China. In 1991 – the year of Indian economic reforms— the per capita incomes of India and China were the same and the technological capacities were at similar levels.
  • Today, China is the factory of the world. It has eliminated poverty. Its GDP and per capita incomes are five times that of India.

, China gdp 1

  • Despite being outside the WTO, the rise of china did not slow. China became a member of the WTO only in 2000, and that too with difficulty.
  • China’s rise changed the G20 economic formulations from ‘free trade’ to ‘fair trade’ which was pushed by the U.S.’s ‘America first’ policy.
  • The Belt and Road Initiative and the Regional Comprehensive Economic Partnership (RCEP) are being promoted by China, which is on its way to becoming a superpower.


  • Having conquered global markets, China is now the proponent of free trade and globalization.

Free trade agreements: RCEP

Free trade agreements RCEP 1

Let us have a larger historical perspective of RCEP involving India

  • In the run-up to the RCEP negotiations, most of the trade groups in India saw adverse consequences and asked for modifications and protection before joining the RCEP. However, some argued that India should join RCEP as it could not afford to stay out.
  • The experience of India’s FTAs with Asian countries has shown that the Indian industry has not experienced the anticipated gains.

Real loss to India

  • The real loss in this period to India has been through the growing trade with China.
  • There is the widespread view that India did not gain from its FTAs as it did not undertake the reforms needed to improve competitiveness. If we consider this view, then joining the RCEP would pose a problem. However, it would then compel India to undertake requisite reforms and become
  • The straightforward proposition would be to argue for first becoming competitive, and thereafter consider joining the RCEP.
  • Growing imports of consumer goods, thermal power plants — and now solar panels and exports of primary products like iron ore and cotton, constitute India’s trade with China. All that is imported was being made, and can be made in India.
  • Currently, while the global economic scenario shows that the demand of goods has stagnated in the West, there is competitive manufacturing capacity in China and at the same time there is a huge growing demand in India.
  • The logic of free trade is for India’s growing demand to be met by China’s excess capacity and India’s inefficient, non-competitive capacities to close down without need for creation of new capacity.
  • This has been happening since decades and going on currently, too. Joining the RCEP and other Free Trade Agreements would only accelerate the process. This may be a major factor in the structural nature of the present severe economic downturn.


India needs to take a hard look at its choices. It cannot delay the creation of global competitiveness and has to abandon conventional ways of thinking. The better-functioning manufacturing markets and reducing costs for businesses are overdue. Smarter, creative policies for developing and nurturing the nation’s industrial and technological capacities need to be crafted. Economic nationalism and greater ambition is the need of the hour.


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