In the long term, I am of the view that we cannot afford to abandon the domestic industry as it will end up killing consumers if China increases prices in future. It is, therefore, necessary to weigh the short term and long term benefits. I do not think that Indian industry, both service and manufacturing, can be badly off with regard to better productivity or capability.
PROS AND CONS
When it comes to pure service, there are two challenges in FTA established with any country. The advantages are availability of range and the ability to shore up much faster. Besides the traditional distribution channels will be quickly challenged.
The negative factor is that there could be huge quality variation on account of which customers may be disappointed after some years. I do not think that FTA by itself is a bad idea for the service industry provided it is well monitored and regulated.
I am ambivalent about it since my view is that the service industry can benefit in the short term if the right things are done. In the long term, if it comes at the expense of Indian industry then it will be a threat.
Looking at the opportunities in China, I see huge scope as the automotive industry in the country is growing phenomenally and logistics costs are fairly high. The logistics cost in India is roughly 14.5 percent of total production cost which was nearly the same in China till a couple of years ago. During the last two years, however, this has come down by about 1.5 percent.
The key issue is that the logistics concept is very limited since China is used to full capacity production and complete sales. For this type of business, it is necessary to get only the approval of the local government and not FTA.
I feel it is necessary for Indian manufacturing to produce a full range of components or at least a few systems or modules for every vehicle in the world so that it will throw open the opportunity. This is the strength of the Chinese auto sector, which is further augmented by volumes.
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