India is said to be developing land of more than 450,000 acres, in order to attract Companies who would want to leave China. Tensions between the US and China have rised after the US blamed China for the development of the coronavirus disease. A rise in tension could include a trade war by both countries adding tariffs and hence making it worse for companies producing in China.
This is the perfect opportunity for India to give shelter to the companies willing to leave China. If India makes the best of this then they could see companies setting up industries in India which will make products in India cheaper, improve the balance of trades, contribute to GDP growth, create employment and generate tax revenue.
The industries setting up will make the goods cheaper since the goods will be produced in India and tariffs and quotas can be avoided. Some amount of goods will also be exported and the overall imports will be reduced, hence increasing the injection and reducing the leakage from the circular flow of income. Since industries will be shifting here, they will also require labour and hence creating employment in the country and lifting people out of poverty. The raw material required to supply these industries may also come from local suppliers and hence increase the revenue for these local firms. The income earned by the employees of the new firms will spend some proportion of their money on other goods and services and hence increase the flow of money in the economy, an example of the keynesian multiplier. The firms setting up will also pay corporate tax and hence increase government revenue which can be used in education and other such vital sectors.
The setting up of firms can also cause negative impacts to the economy. The firms setting up can use the deregulation of labour laws(link to article) in order to exploit the workers by paying them low wages. The new firms may also pose a threat to the smaller local firms by competing with them and selling at lower prices due to economies of scale. The firms could also send profits back to their home country and avoid paying taxes in India or pay lower taxes, the money they would earn would hence be considered a part of other countries GNI and not India’s. Most importantly, they may have negative externalities such as pollution and dumping waste on land and nearby water bodies, which would affect the air quality and marine life in India. If workers are not provided with suitable working conditions then they may have health problems.
Overall, it would really benefit the economy if India is able to welcome new firms, but in that case the labour laws should be set back to normal, complying with the International Labour Organisations guidelines and also prevent firms from causing negative externalities and promote sustainable industries while also allowing them to set up with ease and help the economy recover from the negative impact caused by the coronavirus.
Image source- theweek.in
Very informative
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