- Many American, Japanese, and South Korean companies based in China have initiated discussions with the Indian government to relocate their plants to India. This article analyses the challenges that lie before Indian manufacturing industries in serving as an alternate destination to China.
Why did companies exit china?
- Companies are expected to exit China due to three primary reasons.
Supply chain disruptions in China
- Realising that relying heavily on China for building capacities and sourcing manufacturing goods is not an ideal business strategy due to supply chain disruptions in the country caused by COVID-19.
- Fear of Chinese dominance over the supply of essential industrial goods.
Geopolitical and trade conflicts
- Growing risk and uncertainty involved in operating from or dealing with China in the light of geopolitical and trade conflicts between China and other countries, particularly the U.S.
Crisis as an opportunity
- Prime Minister Narendra Modi’s emphasis on using the COVID-19 crisis as an opportunity to pursue the goal of a self-reliant India must be viewed against this background.
- But what remains a question is ‘Can India succeed in attracting manufacturing firms and jobs from China?’
India’s position Vs China’s
- India lags far behind China in manufacturing prowess.
- China ranks first in contribution to world manufacturing output, while India ranks sixth.
- India’s share of manufacturing in Gross Domestic Product (GDP) stood at 15% in 2018, only half of China’s figure.
- Industry value added grew at an average annual rate of 10.68% since China opened up its economy in 1978. In contrast, against the target of 12%, the manufacturing sector has grown at 7% after India opened up its economy.
- Next to the European Union, China was the largest exporter of manufactured goods in 2018, with an 18% world share.
- India is not part of the top 10 exporters who accounted for 83% of world manufacturing exports in 2018.
Constraints in promoting manufacturing sector
- Unless the below mentioned challenges are addressed, the dream of making India a manufacturing powerhouse rivalling China would be difficult to realise.
- Infrastructure constraints
- A disadvantageous tax policy environment
- A non-conducive regulatory environment
- High cost of industrial credit
- Poor quality of the workforce
- Rigid labour laws
- Restrictive trade policies
- Low R&D expenditure
- Delays and constraints in land acquisition and
- Inability to attract large-scale foreign direct investment into the manufacturing sector.
Role of states
- Since India follows a federal government system, a lasting solution to these constraints can be possible with the active participation of State governments and effective policy coordination between the Centre and the States.
State specific strategies
- Currently, manufacturing growth in India has been powered majorly by Maharashtra, Gujarat, Tamil Nadu, Karnataka and Uttar Pradesh which cover a substantial portion of India’s geographical area.
- However, Andhra Pradesh, Bihar, Chhattisgarh, Madhya Pradesh, Odisha, Rajasthan, Telangana, and West Bengal are some States that also have large land area contribute disproportionately little in manufacturing GSDP.
- The reasons for less manufacturing activity in these States have to be carefully examined, and based on this, State-specific industrialisation strategies need to be devised and implemented in a mission mode with active hand-holding by the Central government.
Strong policy actions
- Strong and carefully designed policy actions on the part of individual States would improve India’s overall investment climate, thereby boosting investments, jobs, and economic growth.
- To promote electronic manufacturing, Union Minister Ravi Shankar Prasad suggested forming a Strategy Group consisting of representatives from the Central and State governments along with top industry executives.
- The purpose is to instil teamwork and leverage ideas through sharing the best practices of the Centre and States. A similar approach is needed for developing the whole manufacturing sector.