India eyes to become next ‘manufacturing hub’ as companies relocate production units from China

indica News Bureau-

With coronavirus pandemic spreading across the globe and speculations being that it originated in Wuhan, China, the county may lose its status as ‘manufacturing hub’ as many companies are now focusing to invest in India for large scale manufacturing of goods.

Amidst the pandemic, around 1,000 foreign companies are engaged in discussions at various levels with the Indian authorities and at least 300 of these companies are actively pursuing production plans in sectors such as mobiles, electronics, medical devices, textiles and synthetic fabric, according to top government sources, reports Business Today.

Officials told the journal that the companies are now looking at India as an alternate manufacturing hub and have taken up their proposals across various levels of the government, including central government departments, Indian missions abroad and state industry departments.

“About 1,000-odd companies are currently engaged in discussion at various levels such as investment promotion cell, central government departments and state governments. Out of these companies, we are targeting 300-odd companies,” the official said.

“We are hopeful that once coronavirus is in control, a lot of things will fructify into actual relocation. And India will emerge as an alternate manufacturing destination. Many countries like Japan, US and South Korea are over-dependent on China and that is now very apparent,” he added.

The government in September 2019 has brought down corporate tax to 25.17 % and the applicable tax for new manufacturers was reduced to 17 &, lowest in South East Asia, in order to give a push to domestic manufacturing. The new reduced taxes will attract sizeable foreign investment in the manufacturing sector to India.

The government is also now directing its focus on reducing the cost of production as many countries are planning to relocate production units out of China and set up new units at other locations.

While US President Donald Trump has already shown his displeasure with China saying that it could Japan has announced $2 billion financial aid for its companies to shift production out of China.

The authorities at the Department for Promotion of Industry and Internal Trade (DPIIT) are hoping that more countries will follow Japan’s lead and set up their units in India.

“Now the world is rethinking its strategy of putting all eggs in one basket. A lot of interest is being shown by companies towards India,” says Guruprasad Mohapatra, Secretary in the Department for Promotion of Industry and Internal Trade (DPIIT).

“India is generally considered an attractive destination because of its market size and also India being a possible hub for exports in the region. That’s the reason FDI has been recording very impressive growth in the last 5-6 years,” he added.

While the government is making an all-out attempt to hard-sell India as a manufacturing hub it may find it an uphill task given that the production cost difference between India and Southeast Asian countries is about 10-12 percent. But the government is banking on the large market size of India as a big advantage for manufacturers.

“If you manufacture mobiles in Vietnam, what do you do with them? You have to essentially export. You can’t sell there as there is no local market,” an official involved with the government’s Make-in-India initiative said.

He explained giving an example of mobile phones. “There is a huge market in India for mobile phones that cost less than $100. For mobiles costing $200 or more, there is a huge potential of export. So, from the 10-12 percent (percentage cost difference between India and South East Asia), almost 6-7 percent is negated or adjusted by India’s market itself. For the remaining 5-6%, a combination of state incentives and central incentives are there,” he told Business Today.