Jul 01, 2020
1> Consequently, countries are rethinking their dependence on China for manufacturing all kinds of goods. Although it still makes financial sense for them to outsource this essentially “non-value adding” activity, they now realise it does not make much strategic sense to depend so much on a single country; that also with the level of non-transparency as exists in China. The COVID-19 pandemic has totally exposed the negative consequences of single-country dependence. In the midst of battling the COVID-19 pandemic, many countries suddenly found that they were totally dependent on China for even the essential medical supplies of personal protective equipment (PPE), ventilators and drugs. It is no wonder that Japan has already announced a 243.5 billion Japanese yen package for companies shifting their manufacturing outside China. USA is also reportedly encouraging American companies to move their manufacturing operations outside China. President Donald Trump has repeatedly made comments reflecting America’s serious unhappiness over China’s role on this global pandemic. It is widely expected that other countries would also want to partly, if not completely, move out their manufacturing operations outside China to not risk putting all their eggs in one basket.
India needs to grab this opportunity with both hands. It is no secret that manufacturing sector needs to be revived to leverage India’s much-touted “demographic dividend”. This very unfortunate pandemic, fortunately presents India with a rare window of opportunity to woo companies wanting to exit China and on the lookout for suitable destinations. Although India lags far behind China when it comes to “hard” infrastructure including quality roads, ports & airports, 24/7 electricity and developed real estate, India does have certain solid advantages. India has one of the largest working-age population and middle class in the world. Our domestic consumption is around 60% of the GDP and India is widely believed to become the third-largest consumer market in another five to ten years, thereby providing significant growth opportunities internally. The entry-level salary of the Indian worker is around $150/month, which is competitive and almost one-third of that in China. India is the world’s largest democracy with a thriving media and judicial system. Finally, India has friendly relations with most of the developed countries, thereby ensuring that added thrust to this relationship.
However, the manufacturing companies wanting to partially or completely exit China will not automatically land on India’s borders. We would need to plan and work towards convincing them to make long-term bets on India. First, we need to create a national level task force, with active participation from all states, to attract manufacturing to India. The taskforce would not only signal to all stakeholders that India means business but also would give a national level framework to this very important opportunity that has the potential to transform India into a major manufacturer for the world. This could be a game-changer for India and certainly needs a national-level effort. Second, we need to either create new SEZs or find space in the already existing ones, with attractive terms and conditions for the incoming companies. India had already lowered the corporate tax rate, to as low as 15 percent for new manufacturing firms. It is a competitive tax structure and incoming companies wanting to set up base in India should be offered a similar tax structure. Third, we need to seriously cut down on the number of approvals and time required for foreign companies wanting to set up their business in India. India is generally not considered “business-friendly” and for a reason. We need to create an effective and working single-window system, with appropriate audit mechanisms of course, for incoming companies investing in India. Fourth, we should use this opportunity to invest massively on our hard infrastructure in the next five to ten years. Generally speaking, our roads, airports and ports are not the worst in the world, but not even close to the best worldwide. We need to change this on an urgent basis. The public-private-partnership (PPP) model could be used to put this into top gear. A long-term partnership with incoming companies setting up base in India, to develop the infrastructure in and around their base area, could be a possibility and certainly a mutual win-win.