The trade war between the US and China may be partly responsible for the economic slowdown globally, but it presents an opportunity for India to propel itself to become a hub of manufacturing in Asia.
Bear in mind the recent report about Huizhou in southeast China having turned into a ghost city after South Korean smartphone giant Samsung closed down its three-decade-old factory there in September 2019 and shifted its base to Noida, Uttar Pradesh. The entire ecosystem that was based on the factory – because it provided and supported 80 percent of the businesses and economy of Huizhou directly or indirectly – was affected, forcing workers to desert the city in search of greener pastures.
What was lost by China, was gained by India. Samsung lost no time in setting up its world’s largest mobile factory in Noida, National Capital Region, last year. The new capacity will enable Samsung to double its production from 68 million units to 120 million units per year by 2020 in a phased manner. Close to 30 percent of the smartphones manufactured in the world would then be expected to be exported from India soon.
No doubt China continues to enjoy the reputation of being the “world’s factory”. But, according to the US India Strategic Partnership Forum (USISPF), about 200 US companies are seeking to move their manufacturing units from China to the US.
For India to grab this opportunity, the Government of India needs to accelerate its reform process and bring more transparency in its decision-making processes.
It not only needs to set out land and customs reforms, but also strengthen its supply chain model. Member companies of USISPF have invested $50 billion in the last four years, creating a number of jobs and promising to generate more in the future as the ecosystem around these factories grows.
Even as China has maintained its economic heft over India, there are a few salient features that give India an edge over its wealthier northern neighbour. One, India-US relations under Prime Minister Narendra Modi and President Donald Trump are strong and relatively stable.
Two, India boasts of a majority young working population out of its total of about 130 billion.
Three, India and the US can sign a free-trade agreement (FTA) to have more access to each other’s markets and iron out any future generalised system of preference (GSP) withdrawal-related issues. Also, the domestic market that can swallow a large percentage of manufacturing goods from a larger manufacturing unit, doubled with incentives for exports, would be a big incentive for global giants to stay put in India.
India is expected to jump six ranks to No 5 in the 2020 Predicted Manufacturing Competitiveness index.
However, ease of doing business could be the most deciding factor in India becoming a manufacturing hub. Sustained business reforms have managed to put India at the 100th spot in its global ranking. But investors need to look beyond rankings and consider parameters such as cost of logistics – for which India needs serious catching up – before they decide to make India a preferred manufacturing destination.
The writer is president, Associated Chambers of Commerce and Industry of India (Assocham). The Economic Times (India)