If India wants to challenge China as a global manufacturing hub, it will have to move quickly

As China reels from the impact of Covid-19, many are asking: does India have an opportunity to emerge as an alternative global manufacturing hub? That is easier said than done, for a host of reasons.

First, Indian manufacturing is tailored to the domestic market and it takes time to make the changes that will allow manufacturers to ramp up production for an international audience.

Second, only some locations in India are suitable for large-scale production, and there are logistical challenges in getting raw materials to these production hubs and in getting the finished products out.

Third, the large-scale reskilling of workers required, to take on the jobs which might move from China, will not happen overnight. It will need significant investment from both the government and the private sector.

Fourth, there is already a lot of competition from countries such as Vietnam and neighbouring Bangladesh. India is a democracy and a federal one at that, which means that laws differ from province to province, making things difficult for potential investors.

Fifth, there is shifting local-level politics. For example, some foreign entities had indicated an interest in a new smart city, Amaravati, to be set up as the capital of the southern Indian state of Andhra Pradesh, but with the change of government in that province, things seem to have moved in a completely different direction.

Sixth, ports would need to be revamped. This is where India’s ambitious Sagarmala initiative will play a very important role in the years ahead, in “unlocking the full potential of India’s coastline and waterways.” In India’s immediate neighbourhood, Bangladesh is set to build the Matarbari deep seaport with help from Japan, which will be able to handle 8,000 TEU (20-foot equivalent units) ships. At present, the largest seaport in Bangladesh cannot handle ships of more than 2,000 TEU.

Seventh, the central and state governments will have to ensure a steady power supply, which is not the case in some parts of India. Labour laws also need to be relaxed and special economic zones set up. New Delhi should consider getting help from countries such as Japan, which are experts in supply chain logistics.

India will have to impress upon US, European, Japanese and other companies to take advantage of its huge domestic market and favourable location, in shifting their supply chains to India. An attractive tax regime would be helpful.

Although India has moved up many places in the World Bank’s ease of doing business rankings, it is too early to sit on its laurels. In the 2020 Doing Business report, India was ranked 63rd out of 190 economies, a major improvement from 142nd place in 2014, when the Modi government took office.

All of these issues will have to be addressed quickly since there are other countries waiting to do the same. Even before Covid-19, some low-wage jobs have moved out of China to countries such as Vietnam, Bangladesh and Thailand.

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India has seen progress, of course, with Taiwan-based Foxconn Technology Group (formally known as Hon Hai Precision Industry) producing the iPhone X in India, in a move away from China. Foxconn operates two assembly plants in India. In a leg-up to the Indian defence industry, Boeing and Tata have a joint venture in India, which will enable the country to export weapons systems in the future.

Any move of global supply chains to India would also gel well with the “Make in India” initiative actively propagated by New Delhi. The government would also need to prioritise some sectors such as auto parts and ancillaries to take advantage of the shifting priorities of global companies.

Bringing global supply lines to India would help alleviate the unemployment situation and move much of the population away from agriculture. New Delhi must strike while the iron is hot.

Dr Rupakjyoti Borah is a senior research fellow with the Japan Forum for Strategic Studies. He is author of The Elephant and the Samurai: Why Japan Can Trust India, and Act-East via the Northeast: How India's Northeast is Strengthening the Kizuna (Bond) Between India, Japan and Asean. The views expressed here are his own