As Covid-19 Disrupts Global Supply Chains, India becomes a natural destination for US companies

indica News Bureau-

At a time when India and California both are locked down with ‘shelter-in-place’ orders to fight COVID-19, Facebook Inc. announced an investment of  $5.7 billion into India’s largest telecom company, Reliance Jio, instantly valuing Jio to being among the top five companies in India, were it an independent entity. This investment happened on the same day when a Pew Center survey found that two-thirds of Americans say they have an “unfavorable” view of China. If China is falling in attractiveness, what is filling its place? The answer, it seems, is India.

While the Facebook-Jio deal is largely digitally driven, we believe that 2020 could mark an inflection point in the bilateral trade of goods between the United States and India, reported Harvard Business Review.

“My read is that the network, if it pans out, will look to India and Vietnam to replace China in the global supply chain network,” said Derek Grossman, researcher at the Washington-based RAND Corporation who held positions in the U.S. Intelligence Community for more than a decade. “This would be a rough fit in terms of replacing China’s immense manufacturing capabilities, but perhaps the U.S. has high hopes that India and Vietnam can quickly ramp up to at least equal Chinese capacity.”

India in April partially lifted a ban on the export of hydroxychloroquine and paracetamol following a request from Trump. It also approved 130 billion rupees ($1.7 billion) worth of investments to make more bulk drugs and medical devices, and to boost local manufacturing of drug intermediates and active pharmaceutical ingredients to cut dependence on imports from China.

“India is a bigger market than Vietnam or Cambodia so it should be a bigger draw for investors looking to move operations out of China,” said Ajay Sahai, director general and chief executive officer of the Federation of Indian Exporters. “But apart from ensuring land, water and sewerage, the most important change India needs to make is to give a clear guarantee that the government will not introduce retrospective tax amendments.”

Some states including Maharashtra have ensured that supply chains for foreign manufacturers remained functional through India’s national virus lockdown. Others like Tamil Nadu in the south and Uttar Pradesh in the north have offered concessions for those planning to move.

“There’s abundant capital in the U.S. that’s looking for geographies outside, and we can see India responding,” said Mukesh Aghi, president of the U.S.-India Strategic and Partnership Forum, a Washington-based group that advocates for policies that further business ties between the countries. “Companies realize that while large supply chains in China may have been economical, there’s no point in keeping all your eggs in one basket,” Bloomberg reported.

Dr. Mukesh Aghi, CEO of the trade group, U.S.-India Strategic Partnership Forum, declares “While U.S. companies are looking for alternatives to China, India becomes a natural destination. You have an English speaking workforce, highly skilled, the cost of labor is cheap and more important it is a growing market of 1.3 billion people whose disposable income is growing.”

Already, “The United States is India’s top trading partner, ahead of China today,” adds Nisha Biswal, President of the U.S. India Business Council (USIBC), which is part of the U.S. Chamber of Commerce in Washington. Indeed, she says, a lot of top American companies have their biggest or second biggest bases in India.


Supply chain disrupted

The HBR report said that companies in the United States, Canada, Europe, and Australia have been hit with supply chain shocks as the flow of materials from China was disrupted by the pandemic. CEOs are confidentially asking their supply chain teams to develop additional sources that are completely independent of China. In addition, in the United States there is pressure from employees who are wary of traveling to China, from customers who are concerned (rationally or not) about the safety of foods and other items from the country, from investors who worry greatly about over-dependence on any one country, and increasingly from politicians as well as State Department leaders who want companies to rapidly decouple from China.

In 2019, the United Stated imported a staggering $452 billion of goods from China. Only five low-cost countries have GDPs larger than that: India, Mexico, Indonesia, Brazil, and Thailand. India is the biggest economy among these candidates and has the largest untapped potential for filling part of the supply chain vacuum that is created by exodus from China.

In a recent virtual meeting with the American Chamber of Commerce in India, Thomas Vajda, deputy assistant secretary for South Asia was quite blunt. “India can quickly become a favorable jurisdiction for more of the industrial activities that are happening currently in China,” he told them according to The Economic Times.

Trump’s move to blame China for its handling of the COVID-19 outbreak, which has killed more than a quarter-million people worldwide, is expected to worsen global trade ties as companies and governments move resources out of the world’s second-largest economy to diversify supply chains. Japan has earmarked $2.2 billion to help shift factories from its neighbor, while European Union members plan to cut dependence on Chinese suppliers.

What Can You Buy from India?

Traditionally American executives have thought of India as a source of spices, textiles, apparel, jewelry, and handicrafts.

While India does export billions of dollars of these products to the United States, India has moved much further up in the value chain. The cabin of Marine One, the presidential helicopter is fabricated for Lockheed Martin’s Sikorsky unit in India, according to Aghi and he goes on to add “The Ford EcoSport is manufactured in Chennai, India for the U.S market.” NASA’s Jet Propulsion Laboratory in Pasadena, California is collaborating with the Indian Space Research Organization on the most expensive imaging satellite ever to be launched, NISAR. This probe will be built and launched in India and will study hazards and global environmental change more accurately than ever before.

India exports shrimp, processed foods, and agricultural products to the United States. Aghi says that 3.2 million Apple iPhones built in India will be exported from the country. Biswal of USIBC asserts that India can supply medical devices, energy efficient green transportation, power semiconductors, switches, and rectifiers for American needs. India already provides almost 40 percent of the generic drugs sold in the United States, produced at factories inspected and approved by the U.S. Food and Drug Administration.

We call this phenomenon “India Inside,” where much of what is imported from India goes unnoticed by both American consumers and the media, but is nonetheless crucial to the fabric of the U.S economy. In particular we are confident that factories in India can scale up volume production to meet the domestic Indian, American, and global demand for devices, disposable and drugs to diagnose, treat and vaccinate against COVID-19.

Unlike export-driven China, India’s companies grew rapidly by serving pent-up domestic demand since the economy liberalized in 1991. In the process, Indian managers and entrepreneurs acquired the management skills and quality standards to expand globally, but they first turned to markets in the Middle East, ASEAN, Africa and Eastern Europe.

According to detailed current data from India’s Ministry of Commerce, Indian companies export billions of dollars each in categories as diverse as: furniture, medical and surgical instruments, electrical machinery, ships and boats, vehicles, boilers, parts made of plastic, steel and aluminum, organic and inorganic chemicals and more. We believe that many of these Indian suppliers are ready for first world markets. American companies can source these and other goods from their Indian corporate counterparts; unlike in China, these suppliers are not affiliated with the government.

India is seeking to lure U.S. businesses, including medical devices giant Abbott Laboratories, to relocate from China as President Donald Trump’s administration steps up efforts to blame Beijing for its role in the coronavirus pandemic.

The government in April reached out to more than 1,000 companies in the U.S. and through overseas missions to offer incentives for manufacturers seeking to move out of China, according to Indian officials who asked not to be identified, citing rules on speaking with the media. India is prioritizing medical equipment suppliers, food processing units, textiles, leather and auto part makers among more than 550 products covered in the discussions, they said.