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India Must Seize Once-In-A-Century Opportunity In Manufacturing
India would be much better off in adopting a calibrated approach to building its own manufacturing strength as that would inevitably lead to import reduction.
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Economic disruption and opportunity can sometimes go hand in hand. The stars appear to be lining up in India's favour post the pandemic with Japan recently deciding to incentivize companies looking to shift here from China, while American companies as well are scouting for new bases.
Military tensions have also made a host of other nations in the Asia-Pacific region uncomfortable in their business dealings with the No. 2 economy. India's moment in the sun is there for the taking if it can stretch Prime Minister Modi's vision of a self- reliant nation and emerge as a global business hub.
The recent decision by Apple as well as South Korea's Samsung to shift part of their manufacturing base to India bodes well for its progress. But these investments have come in a single sector, which have received favourable treatment under the Production Linked Initiative (PLI).
WELL BEGUN IS ONLY HALF DONE
Under the program, close to INR 410 billion (US$5.52 billion) has been approved to boost domestic production for manufacturing of mobile phones and certain electronic components. The government needs to broaden the manufacturing agenda to other sectors like pharmaceuticals, which are overwhelmingly dependent on China for raw materials.
Policymakers would do well to remember that several global investors which moved out of China have preferred to invest in other nations like Thailand, Vietnam, Bangladesh. It is clear that India can not bank upon the heft of its market size and skilled workforce alone as a sufficient incentive.
The reasons why investors look away are not far to seek.
Lack of access to land, complex labour laws and a myriad web of compliances appears too daunting.
According to a study by the Federation of Indian Chambers of Commerce and Industry (FICCI), as many as 1984 compliances are required in a year to meet as many as 122 state and central laws.
The process of dispute resolution in courts and procedures for business operations takes far too long. With 1.73 lakh cases pending before courts with some of 20-year vintage, an overburdened legal system is unable to redress complaints swiftly.
Speeding up such compliances and tardy justice delivery alone would go a long way in facilitating business investments.
India has taken some positive measures recently such as readying a pool of land that is twice the size of Luxembourg to offer companies that want to move manufacturing out of China. State and central government are also trying to create land banks for companies.
It might be an ideal time to expedite the smart city program as global firms looking to shift out of cities like Hong Kong would look for world class ambience and infrastructure.
WALK THE MIDDLE WAY
The recent border standoff has given rise to calls that India should boycott Chinese infrastructure equipment and other supplies. Such a knee jerk response would be nothing short of disaster for India's global business ambitions currently.
Like it or not, over the last two decades, India has come to lean on China too heavily for everything from bulk drugs and solar modules to plastic buckets and Ganesha idols. Our imports from China have doubled in the past decade, accounting for 14% of our import bill.
While imports of consumer goods have attracted public ire, they account for only 15% of inbound shipments. Capital goods and intermediates--critical for manufacturing--account for 50% and 35% respectively. Now, India can't suddenly wish away infrastructure equipment or projects that it has ordered from China as doing so would set back these programs by years.
One of the biggest reasons why global investors tend to look away from India is the sorry state of infrastructure. If policymakers slam down on critical investments from China, the ripple effect might be that global investors exploring bases here may pull back. It also sends a confusing message as many of such investors would be looking to source parts from China-based factories.
India would be much better off in adopting a calibrated approach to building its own manufacturing strength as that would inevitably lead to import reduction. With the pandemic decimating businesses across sectors, there is no time better to make a new beginning.
Two decades ago, India and China were talked about in the same breath in terms of business potential. Now, it is no longer so, but by a stroke of luck, India once again has a chance of redeeming a lost opportunity.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.