How can India become the new manufacturing hub for the world

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2007

Starting from a small city of Wuhan in China, coronavirus has paralysed economies around the world. It took over the entire planet giving a thunderous jolt to all the activities and compelling the largest of the nations to impose long lockdowns. Since China remains at the heart of this fiasco and is the world’s manufacturing hub, many companies saw their businesses suffer as they faced enormous production shortage. This has posed some serious questions for the world. Is it okay to be hugely dependent on one nation? China has been facing backlash from all over the world as it remains to be the epicentre of this economic earthquake and this might dethrone it from the world’s favourite manufacturing king. 

Companies are rethinking to shift their manufacturing bases to other parts of the world as they take this anomaly like an alarming sign. Companies had been feeling unwell even before coronavirus showed up in China as Donald Trump had imposed tariff hikes on Chinese products. A survey of all the American companies operating in China revealed that already 7% of them were thinking to transfer their business elsewhere before COVID itself. Well, in a way this could be seen as a fortunate opportunity for its neighbour, India. As transport minister Nitin Gadkari mentioned in an interview that this is a ‘blessing in disguise’ for India to attract more foreign investments. 

India is already prepping up to take advantage of this opportunity. Uttar Pradesh, the most populous state of India is already in progress of developing an economic task force to win over firms who are keen on relocating their firms from China. According to a report by Bloomberg, India is also preparing a pool of land twice the population size of Luxembourg for companies who wish to shift their bases from China and they have already reached out to 1000 such companies. India is actively coming forward and stepping up its game to harness this opportunity, say the officials from US-India Business Council, a strong lobby group.

Despite all the odds in favour of India, as they seem to be. It is immensely critical how things will move forward. In a time where the biggest of businesses have ruptured balance sheets, it is difficult to move the entire supply chain across countries. Another bottleneck that India faces in order to be an apt market for companies is that it lacks a strong linkage to the global supply chain market which is a major factor while considering global trade. India will have to sincerely take some reforms and measures to attract significant no. of players and sustain them. 

Here are the major five focus areas –

The Infrastructure

There is no denying the fact that India cannot compete with the world-class infrastructure China has. It is extremely difficult to replicate what China has done. The infrastructure is so intricately planned as they have integrated together their supply chains which saves huge amounts of transportation costs. Going 30 years back in time to learn what china did to become what it is today is one essential noteworthy point. Especially the toy industry in which China is the global market leader, 90% of toys in India are made in China. This also throws light on how invested China is in technology which enables it to come up with innovative and more efficient ways to build a world-class infrastructure resulting in an exponential growth curve. India must foster this culture and spend more on R&D for better plans.

Tweak the ‘Make in India’ formula

Even after such an explosive shock the world suffered due to coronavirus China refused to inject consumption stimulus through direct cash transfers. This shows the confidence it holds upon its model of economy. After the lockdown the chinese companies very quickly shifted to online mode somehow reassuring the foreign companies to stay a bit longer. It’s time that India tweaks the formula of ‘Make in India’ to ‘Make for India’ as once said by former RBI governor Raghuram Rajan. He explained rather than making products for foreign market is a cumbersome process and India should rather focus on producing commodities for the vast indian population who cannot otherwise afford the other expensive goods produced. As the idea of having a manufacturing unit where you sell makes more sense, producing for the local population can be taken advantage of. 

Control Crime Rate

There are no two questions that the crime rate in India is way more than that in China. This swells the balloon of doubt among the companies wishing to invest in India. China being an authoritarian state, there’s rarely any mass protests or court restriction that can potentially hinder the once approved projects. Clearly this is not the case in India where labor union protests and other legal restrictions have brought a halt to the operational activities of a company in the past. It is difficult for Indian authorities to make one sided decisions which most of the companies desire. A more flexible and yet neutral decision making will perhaps make it easier to overcome this problem

Focus on Skill Development

Hands down, the most important factor to make India a manufacturing magnet for foreign investors is the skilled labor force. China has spent extensively in skill development and the rest is history. India will need to take the importance of education very seriously if it hopes for a brighter future. In FY 2018 India spent only 2.7% of its GDP in education as compared to China which spent 4.11%.In addition to educating, India must skill their labour force in various industries from low (mining, agriculture-related etc.) and specialized ones (textile & apparel, electronics manufacturing etc.). Increasing technological innovations are automating the clerical jobs and demand for specialized skill sets, especially IT skills which can be a great asset to the country considering the huge young population it has. India should not ignore this factor and fulfil the skilling needs to remain competitive globally.

Policy Restructuring

Age-old policies and laws are certainly another barricade standing in the way of India to reach the status of a manufacturing hub. From labour laws to land clearances, it’s an absolute headache to get past these archaic processes. The taxation and customs policies are irrelevant which for example makes importing medicines cheaper than locally producing it. As quoted by Ms Biswal in an interview with BBC, President of USIBC and the former assistant secretary of state for south and central Asian affairs in the US Department of State.“The more that India can improve regulatory stability, the better its chances of persuading more global businesses to establish hubs in India.”

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