National flags of China and India VCG

India is developing a land pool nearly double the size of Luxembourg to lure businesses moving out of China, Bloomberg reported on Tuesday, citing people with knowledge of the matter. The report has not been confirmed, but such words suggest that intensified Sino-India competition lies ahead. 

Competition is not necessarily a bad thing. While it is in India's interest to create a friendly business environment, the Modi administration has a range of difficulties and challenges that need to be overcome. There has been some progress in tax reform, but India still lags behind some East and Southeast Asian countries in terms of the business climate. If benign competition against China inspires controllable and rational nationalism, prompting different interest groups to put aside their differences and improve India's investment environment, it might be a good thing.

With India's economic rise, bilateral ties between the two emerging Asian powers are growing increasingly complicated. Benign competition probably can't be avoided, and it should be welcomed. If India wants to replicate China's success in attracting foreign investment, China will most likely be willing to offer help, especially at a time when some Chinese investors are turning their eyes to foreign markets including India.

What we worry about is not Sino-India competition, but slow progress in India's effort to improve its investment environment. The Bloomberg report said land has been one of the biggest impediments for companies looking to invest in India, because investors must acquire land on their own and it's always not easy to persuade small plot owners to part with their holdings. Land acquisition is just the first step in investment, though. It's conceivable that manufacturing investors may encounter many difficulties such as how to recruit enough skilled workers in a country with high illiteracy rates.

There is too much uncertainty in the global market due to the coronavirus pandemic. Many think that global industry chains will reduce their dependence on China, and that trend may offer opportunities to some Southeast and South Asian countries like India. However, that view may be too optimistic. As of Tuesday, India had reported more than 46,000 coronavirus cases. Before new coronavirus cases in India drop to zero, attracting foreign investment will be just empty talk.

The best option for India is to prevent foreign manufacturers from moving production abroad, given the severity of the coronavirus outbreak in the country. China is the main source of India's foreign investment growth. If New Delhi introduces unfriendly policies regarding Chinese investment, the Indian economy may be the ultimate victim.