Just a while ago, Prime Minister Modi urged the states to prepare to attract international firms exiting China in the wake of the virus scare and global condemnation. The government’s move was understandable. After all, a movement of large multinationals to India would stave off what now seems to be an extremely serious economic crisis, with Moody’s downgrading the economy to one notch above junk status, as the economy, already hit by bad decision-making and lack of financial reform, confronted the coronavirus crisis.
To make matters worse, the three wealthiest and most industrialised states — Mumbai, Gujarat and Delhi — were the worst hit by the virus. Reviving these financial hubs is going to be a Herculean task, given that the virus spreads the fastest in polluted and crowded environments.
Here’s the irony. Hit by a sluggish economy and uneven growth, China’s Deng Xiaoping had once followed exactly the same path that India is now trying to do. Authority was devolved to the provinces to allow growth of industry and manufacturing, resulting in these ‘town and village enterprises’ generating a third of GDP.
Prior to this, the Great Leap Forward had already set the stage, with some 6,00,000 backyard furnaces set up to produce iron and steel, powered by coal being mined in 59,000 mines. Deng, however, like Modi, was keen to draw in foreign firms, and for provinces to benefit from investment.
As the China powerhouse grew, Beijing put out an Environmental Protection Law (1979). But provincial leaders, keen to show their prowess and shore up their influence, paid little heed. Besides, foreign firms were coming in large numbers, until all the big names in the industry were represented in the country.
It was not just cheap labour that attracted these companies. Strictures in the US by the Environmental Protection Agency were virtually unknown in China’s provinces. Disaster struck soon. In 2011, a joint venture between a US firm, ConcoPhilips, and a Chinese company led to one of the worst oil spills in history, polluting an area six times the size of Singapore in the Bohai Bay area. A law suit dragged on for years, until the US firm quietly did an out-of-court settlement.
In 2014, Apple was fined for a second time for flouting environmental laws that included dumping industrial waste into rivers. Apple had earlier committed to banning the use of benzene, which is carcinogenic and n-Hexane which causes nerve damage, after pressure from rights groups.
At another level, foreign firms like Nike, Adidas and Lacoste were accused of sourcing from firms that had discharged hormone-disrupting chemicals and other toxins into rivers.
Chinese environmentalists blamed these firms that professed high environmental standards at home, even while utilising lax rules elsewhere. China suffered a series of environmental disasters through 2010-16, that were also attributable to large Chinese firms, which also overlooked environmental laws or cooked data.
Environmental laws tightened sharply after what was called the ‘Airpocalypse’ when thick smog began engulfing China in 2013, going from 40 times the safe limits to a hundred plus.
By 2015, the Chinese government had amended its laws, allowing NGOs and citizens to report violations in an effort to enforce laws on the ground and came down harshly on own and foreign firms. Some 80,000 factories were reportedly shut down and Japanese companies like Toyota Motors, Daikin Industries and Mitsui Chemicals found themselves facing heavy fines. Inevitably, it led to the conclusion that it was beginning to be difficult to do business in China and cries of foul play.
By 2018, the environmental crackdown had already begun to impact global supply lines. Between 2018 and 2019, some 56 firms had already begun to move out of China. This year came the announcement that the firms were pulling out due to Covid-19 and Chinese culpability.
The above shows that’s not entirely right. Firms are pulling out also because China is finally putting its citizens’ health above other interests. The trade war and the virus are more recent and additional factors.
The India story looks set to follow the same pattern, without, however, the stringent determination that Beijing has shown in cracking down on environmental grounds. Just six months ago, Delhi’s pollution had effectively gone ‘off the charts’ — in other words, beyond measurement capabilities, with little government reaction.
Meanwhile, the states are getting the red carpet ready. Uttar Pradesh has set up a task force for the purpose and changed labour laws. It was rewarded with a German shoe manufacturer moving its entire line from China in a deal valued at Rs 110 crore over two years. Leather is a highly polluting industry and in UP, hundreds of tanneries already discharge effluents into the Ganga. Happily, there were ways to make the industry more sustainable and some small firms have done so. Whether Lucknow will insist that a multi-billion company does the same is another question altogether, particularly when the central bureaucracy has little or no interest in the environment. Other companies associated with producing iPhone parts are also likely to move to India.
Meanwhile, analysts point out that India’s lack of infrastructure — as also its inability to handle the virus as efficiently as Vietnam, for instance — will negatively impact its attractiveness as a destination. What is, however, likely is that highly polluting industries that are hamstrung by strong legislation elsewhere, will probably turn to India, worsening an already dangerously unstable environment.
There is a way out, which is to quite literally clean up the cities that power India’s economy, thinning out their population density, and relocating polluting industries to specific industrial areas, where environmental regulations can be strongly imposed. India can also move away from China’s biggest mistake — which was overproduction and consumption of coal, the dirtiest and most environmentally expensive source in both contexts.
Prime Minister Modi once had a vision of an India powered by the sun. That vision needs to be aired again, with perhaps Beijing invited to power the country using its huge expertise in solar panels, an industry that is suffering from domestic overexpansion. That’s a step that may also power Indian foreign policy at a very difficult time.
Meanwhile, the government cannot but welcome foreign firms, given the huge unemployment crisis. It just needs to remember that unbreathable air and poisoned water may not keep them here. Before signing on the dotted line, look those gift horses carefully in the mouth.
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