COVID-19 pandemic has been accompanied by not just business disruption of monstrous proportions all across the globe, but a whole lot of political turmoil as well. Many countries, including Japan, Australia and South Korea are evaluating alternatives to reduce their trade dependence on China and many global conglomerates are working overtime to try and take their manufacturing facilities outside China, amidst growing concerns of mistrust against Chinese administration and the political fallout of the prevailing geopolitical conditions in the region. In fact, India, Australia, and Japan have recently started discussions to launch a trilateral supply chain resilience initiative with the main objective of reducing their respective manufacturing and production dependency on China, and to attract increased foreign direct investment into the Indo-Pacific region with the ultimate aim of turning the region into an economic powerhouse.
Japan is separately encouraging and supporting its companies in China to relocate their manufacturing facilities out of China. In fact, according to news reports published in several dailies, Japan is paying 87 companies based in China approximately USD 2.2 billion in subsidies to help them shift production back to Japan or to other Southeast Asian countries like India, Vietnam, Myanmar and Thailand, amongst others.
India has, on its part, also been taking steady and reasonably bold steps in its bid to attract companies that have, for some time now, been searching for alternative jurisdictions for their investments in China. COVID has only intensified the search for such alternative jurisdictions.
India has so far been an insignificant part of the global supply chain. However, the Government of India ("GoI") wants the statistics in this regard to change favourably for India. And this mindset is clearly reflected in the Prime Minister Modi's independence speech this year from the ramparts of the Red Fort, where he mentioned that many businesses of the world are viewing India as the hub of the supply chain and that India now has to move ahead with the mantra of 'Make for World' alongside 'Make in India', thus indicating that India wants to position itself before the world as a viable and attractive alternative to China.
One of the most vital factors, as we all know, that has favoured China in making it one of the most preferred international manufacturing destination on the planet and a crucial part of the global supply chain, is a very evolved business ecosystem prevailing in the country and the impeccable infrastructure offered by it to investors in the form of world-class ports, airports and highways, relatively cheap land and lower wages and very sophisticated logistics support.
Although India has miles to go in its journey towards providing an equally efficient and evolved business ecosystem to investors as China, India is taking big strides in the right direction in positioning itself as a global manufacturing hub of choice.
The Make in India programme, launched in 2014 to encourage manufacturing in India continues to gather strength and has resulted in the 4 of the top 6 performing sectors under Make in India belonging to the manufacturing sector – automotive, electronics system design and manufacturing, pharmaceuticals and food processing. The GoI is continuing with its efforts to boost manufacturing sector by introducing schemes and policies aimed at making the environment more conducive to manufacturing, including the National Policy on Electronics 2019, the Automotive Mission Plan 2026, Mega Foods Parks Scheme, Schemes for promotion of medical device parks and Bulk Drugs Parks etc.
Additionally, there is a lot that is happening in the infrastructure sector as well. One of the components of the Make in India programme which will play a vital role in helping India leapfrog India into a global manufacturing destination is the development of 5 industrial corridors along the length and breadth of India. The industrial corridors are being planned to provide world-class infrastructure, such as high-speed rail and road transportation network, ports with state-of-the-art cargo handling equipment, modern airports, special economic regions/industrial areas, complementary infrastructure such as townships/real estate etc. Also, smart cities are being developed along these corridors. Out of the 5 industrial corridors planned, substantial work has already been carried out in the Delhi Mumbai Industrial corridor, which covers an overall length of 1483 km between Delhi and Mumbai. This should address a major concern relating to infrastructural constraints faced by the investors and industry alike.
On the operational side, India offers a very large pool of English speaking, skilled and semi-skilled labour at comparatively lower cost, a very large and growing domestic market, reduced corporate and other regulatory compliances, concessional direct tax rates and very attractive tax incentives for companies making new investments in India in certain identified sectors, comprehensive indirect tax levied on the manufacture, sale and consumption of goods and services (GST) and a robust contract enforcement mechanism. Not to mention, the Insolvency and Bankruptcy Code introduced in the year 2016 for reorganisation and insolvency resolution in a time bound manner. These factors provide additional incentives to investors to set up manufacturing facilities in India.
The efforts being taken by GoI seem to be yielding results. India has climbed a significant 14 ranks from 2019 in the World Bank's Ease of Doing Business 2020 survey and now stands at 63, amongst 190 countries.
India is, no doubt, faced with an uphill task in trying to tackle two big issues – jumpstarting the economy in the aftermath of the COVID-19 pandemic and at the same time trying to build enough traction that will propel India into becoming a global manufacturing hub. While this is not going to be an easy task by any means, and India faces stiff competition from other Southeast Asian countries like Vietnam, Thailand, Indonesia, Bangladesh amongst others, India's objective can certainly be achieved through sincere and sustained efforts, and with an eye firmly focused on the goals to be achieved.
In our next article in this series we will discuss the alternative methods of investing in India in the manufacturing sector.
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