Column: China’s MSRI and Indian business

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Published: December 12, 2015 2:32:20 AM

Domestic infrastructure constrains competitiveness and the realisation holds India back

The Maritime Silk Road Initiative (MSRI), proposed by China and being developed as a part of the One-Belt-One-Road (OBOR) connectivity framework, includes South Asia and India as important parts of the design. From an Indian business perspective, the MSRI is an exciting prospect. At the same time, it is also a cause for considerable despondency.

The excitement arises from India’s strategic positioning in the MSRI geography. The initiative proposes to connect the Far East to North Europe. China’s east and southern coast, which comprises its major ports, are to be connected through the South China Sea, Indian Ocean, Persian Gulf and the Mediterranean to Northern Europe. Three continents are to be traversed in the process—Asia, Africa and Europe. Among these continents, several regions get drawn into the MSRI. These include Northeast Asia, Southeast Asia, South Asia, the Indian Ocean region, North and East Africa and South and North Europe. Purely from a geographical perspective, India is situated right in the middle of the MSRI geography.

The advantage is critical if viewed from the perspective of cross-continental value chains and production networks. India’s position makes it central to these value chains and networks. Several global value chains run between Asia and Europe, more specifically Northeast and Southeast Asia, and Western and Northern Europe. Functionally, these chains originate from Asia, through raw material and intermediates, are assembled in the region and then eventually exported to Europe as final demand products. On the other hand, there are large resource and commodity chains connecting Europe and Asia through Africa primarily in energy products.

India’s advantageous position in this production network arises from the role it can potentially play in becoming important nodes in the maritime traffic between Europe and Asia, or more specifically between Europe and China.

The Europe-China shipping route is one of the busiest and heaviest in the world. India can chip in into this traffic in two routes. The first is to become a link in the cross-continental value-chains. Indian producers can visualise figuring in these chains, at the relatively upstream and downstream ends, depending on their comparative advantages. If the Make-in-India initiative is being visualised as a programme for encouraging export-oriented production, the MSRI provides a good opportunity to Indian and India-based foreign producers for plugging into the global value-chains. Indeed, foreign businesses plugged into global value-chains connecting Europe and Asia would be keen on exploiting Make-in-India and the strategic advantage of producing from India in the light of the MSRI.

The second opportunity for India arises from the possibility of growing into a strategic maritime hub. Once the MSRI comes up, maritime traffic is expected to increase manifold. Again, India’s central positioning in the route, can help it in latching on to a large part of this traffic. However, such an eventuality would require India to build ports that efficient in drawing containers with large cargo. At the same time, it is also important that India develops at least a couple of major trans-shipment ports that allow quick turnaround of containers with low berthing time. The Colombo port has been a great example in this regard in recent time. It would give stiff competition to Indian ports as an anchor in the MSRI route till similar ports are developed by India.

This is all quite exciting. However, the despondency follows soon after. The sad fact is across the MSRI geography, East Asia, Southeast, and Europe are far ahead of India at this point in time in port and logistics efficiencies. Seven Chinese ports now figure among the world’s top ten busiest ports. The World Bank’s logistics performance index rankings also place India at much lower levels compared with these countries.

The obvious implication of limited capacities is the realisation by Indian businesses that upgraded maritime infrastructure in the MSRI will be in a position to be much better exploited by many countries. China and several other countries from Asia and Europe will be far better placed to exploit the advantages of the MSRI as an economic corridor than Indian producers.

India’s ambitious plan to develop its ports through the ‘Sagarmala’ initiative is a welcome step. However, the benefits from Sagarmala will take years to materialise. It is only in the distant medium-term that India can hope to take its maritime infrastructure to a level comparable with China and Southeast Asia. And during these years, the Chinese and Southeast Asians ports are expected to enhance their efficiencies even further.

Where does all these leave the Indian businesses with respect to the MSRI? It would hardly be surprising if they swallow the bitter pill and plead authorities to be non-committal to the MSRI. Knowing fully well that domestic preparedness if going to take years to flourish, direct participation in the initiative right now might not be what the businesses would be looking forward to. So, back to square one: domestic infrastructure constrains competitiveness and the realisation holds India back. Strategic and business thinking resonate yet again.

The author is senior research fellow and research lead (Trade and Economic Policy) at the Institute of South Asian Studies (ISAS) in the National University of Singapore.
Views are personal

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