The political landscape in India underwent a significant transformation in 2014 when Narendra Modi, with grand ambitions, launched his vision for the nationHe promised to boost the manufacturing sector, aiming to elevate its contribution to India’s GDP to a remarkable 25%, while simultaneously creating an impressive 100 million jobsThis initiative was meant to act as a robust engine propelling India’s economic growth into new heightsHowever, as we delve into the current scenario of 2023, this once-hopeful vision appears to have faltered significantlyThe manufacturing sector's share has not only stagnated but has declined from just over 18% a decade ago to a mere 15% todayTo compound this troubling situation, the workforce has shrunk by over 15 million, and India’s share in global exports has slipped so drastically that it now falls short even when compared to Singapore.

Amidst all the efforts and aspirations directed towards this sector, one must ponder how India has found itself in such a precarious predicament

It’s often easy to place blame on the workers themselves, erroneously painting them as lazy and disinterested in productive engagementHowever, this notion flies in the face of realityWhen Indian workers mobilize, their dedication, long hours, and resilience rival that found in many developed nationsThe stagnation and regression of India’s manufacturing industry can instead be traced to deeper systemic issues, particularly the unresolved challenges surrounding the accumulation of initial capitalTo put it bluntly, the critical elephant in the room is the cumbersome obstacle of foreign exchange reserves.

Consider a hypothetical scenario: India manages to attract a dominant force like Tesla to establish a manufacturing base for electric vehicles, with the hope that such an investment would trigger a resurgence in the domestic electric vehicle industryYet, the stark truth remains that the supporting industrial foundation is almost non-existent

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The country finds itself reliant on imports not just for crucial components but even for basic items such as batteries and seatsAs production ramps up within the context of this investment, the drain on India’s foreign exchange reserves is akin to a flood breaching a dam, which only serves to exacerbate the nation’s existing vulnerability.

Moreover, while Tesla’s decision to invest in India may appear generous, it is important to note that this venture is motivated by profitOnce the manufacturing operations prove successful, the resulting profits will need to be converted back into the company’s home currency, generating substantial amounts of capital flowing back to the United StatesAt that point, should India fail to provide sufficient US dollars for conversion, what stands as a seemingly positive partnership could swiftly devolve into a financial quagmire

In such an outcome, foreign investors would undoubtedly reconsider their positions, leading to a crippling blow to India's international credibility.

A closer examination of India’s foreign exchange reserves reveals a complex scenario fraught with inconsistenciesAt first glance, India boasts the fourth-largest foreign exchange reserves globally, yet this apparent wealth is misleadingIn contrast, other nations’ reserves are predominantly composed of stable currencies like the US dollar and euro, which make up about 70% of their assets, providing a robust financial cushionIndia, however, has chosen a somewhat unconventional pathBeyond currency reserves, the country has invested heavily in gold, and also accounts for its Special Drawing Rights with the IMF in its total reservesThis is comparable to an individual erroneously considering available credit as savings—a glaring misconception that dramatically reduces the actually usable foreign exchange assets.

Furthermore, the seemingly ample reserve of several billion dollars is, upon closer inspection, woefully inadequate when juxtaposed with India’s massive import needs

As a nation that produces little oil, India’s dependency on imported oil is remarkable, with average import ratios even surpassing those of ChinaThe fragile industrial framework means that a significant array of products also must be importedEach year, the trade deficit swells, consuming up over $200 billion, while external debts have soared to nearly $700 billion, with interest payments amounting to an astronomical $100 billion per year.

Though this debt appears trivial compared to the staggering $36 trillion national debt of the US, the contexts of these two nations are worlds apartThe US wields immense global influence, leveraging the dollar’s dominance to extract financial resources without worry about repaymentIn stark contrast, the Indian rupee lacks any significant international standing and remains largely ignored in global marketsShould the need arise to settle its real debts—that is, payment obligations in foreign currency—India faces a precarious position

If foreign exchange reserves dwindle, it could find itself in a situation reminiscent of South Korea in 1998, forced to relinquish core assets like Samsung to manage its debtsAlternatively, it could descend into a fiscal calamity akin to that of Sri Lanka or Zimbabwe, leading to national bankruptcy and the subsequent loss of sovereignty over its economyIn either case, such outcomes are simply unbearable for India.

In the quest for relief from this foreign exchange predicament, the Indian government has resorted to a myriad of desperate measuresOn one hand, it has followed a policy akin to “doing whatever it takes,” aggressively dumping domestic crops despite a staggering food scarcity, with millions still starvingWith little regard for domestic welfare, the government has committed one-seventh of its rice stock to the international market, capturing an overwhelming 40% of the global rice market

Such disregard for citizens' basic needs has prompted even the US to seek recourse against India in the WTO.

On a different front, the Indian government has set its sights on expat workers, unveiling efforts to tap into the remittance potential of its diasporaBy 2022, the number of Indian workers abroad soared to over 32 million, translating to approximately one Indian living overseas for every 40 individuals at homeConcerning geopolitical crises such as the tumultuous Israel-Palestinian conflict, India displayed no qualms about the potential fallout with the Arab world, actively seeking to send labor to Israel to fill gaps left by Palestinian workersThis concerted effort has yielded impressive results, with India netting over $110 billion in remittances within a year, a figure that far exceeds the combined earnings of more than 100 million Indian farmers from their crop sales.

Beyond the immediate measures, India has also championed a movement toward de-dollarization, an endeavor that, contrary to appearing anti-American, is a move born from necessity as reserves plummet

India had hoped to use the rupee for direct trade with global partners, only to find itself largely rebuffedIts previous defaults—having been pressured collectively by 57 nations—have left a lingering stain on its credibility, casting doubt on international trust in the rupee as a stable means of commerce.

While India has found one ally in Russia, allowing purchases of oil with rupees, the relationship has proven unevenWhen Russia sought to trade in rubles for Indian products, India quickly backtrackedThe scarcity of US dollars continues to be painfully evident, leaving no room even to resort to trading in other currencies such as the yuanThis limited access to foreign assets stands feeble against the backdrop of vast demands.

In a bid to curtail foreign exchange outflows, India has ordered foreign firms to significantly increase their use of domestic components

Yet, given the state of Indian manufacturing, this places foreign enterprises in an untenable positionThe country struggles with an alarming trade deficit that typically ranges from $100 billion to $200 billion annually, making it impossible to offer satisfactory returns to foreign firmsInvestment stagnates as firms grapple with hurdles that prevent growth, prompting many to exit the market after only a few years, turning India into a graveyard for foreign investments and stalling its industrial ambitions.

In stark contrast, China faced its own trials not long ago, dealing with a similar economic turbulenceDuring the 1980s, China was a nation considerably worse off than contemporary India; dependence on imports defined its economic landscapeThe introduction of the Santana model marked a crucial venture for China, a move that challenged the nation's limitations on foreign currencies and components.

The initial struggles to domestically assemble a Santana underscored this challenge: aside from tires and horns, every part was imported, with component costs for a single vehicle surging to $6,500— an astronomical figure in that era

The state of affairs became dire as China’s total foreign exchange reserves could barely cover the assembly of 30 Santana vehiclesA failure to localize production within five years could lead to a shut-down for the Shanghai Volkswagen company.

Yet, with unwavering determination, the Chinese refused to turn backAn extensive national effort was initiated to support the Santana projectAn established framework imposed strategic tariffs, drastically increasing import duties while simultaneously reducing tariffs on componentsAs various sectors united to improve foreign revenue streams, a narrative emerged where even laborers in light industries worked diligently to convert local production into hard currency— each laborer shouldering the responsibility of sustaining the economy.

Through tribulation, China triumphedLocalizing Santana components became a reality, external contributions and investments poured in, and a cycle of increasing trade surpluses emerged

Investors soon recognized China’s expanding possibilities for profits, leading to deeper commitments in the country, establishing a sustainable trajectory towards economic empowermentToday, China stands as a formidable industrial powerhouse, transforming its potential into genuine achievements, starkly contrasted by its earlier struggles.

In today’s interconnected world, the dynamics of nation-states stand revealed: some, despite humble beginnings, earn goodwill and trust through ethical practices and transparency, inviting foreign investments and mutually beneficial opportunitiesMeanwhile, nations blessed with resources yet marred by erratic policies find themselves isolated, as potential partners grow wary due to a lack of trust.

As India continues wrestling with its challenges, it becomes clear that its persistent inability to solidify the crucial foundation of capital accumulation, despite the surface-level display of efforts and ambition, impedes its path toward meaningful industrialization