As US-China trade war worsens, can India seize the moment?

indica News Bureau-


With the trade war between America and China worsening and multinational companies operating in the Asian giant scrambling to move out, India is among those countries seeking to capitalize on the situation. But analysts fear it may end up remaining a bystander unless it can quickly resolve the country’s many problems.

According to a report on the Asia Sentinel website, India’s poor infrastructure, complex labor laws, and bureaucratic approach may yet again prevent its emergence as a global manufacturing hub. A similar morass had seen the country being bypassed in the 1980s when China began its journey to become the world’s manufacturing hub.

To attract multinational corporations, India must transform itself into a world-class manufacturing hub with a conducive regulatory environment, excellent connectivity, and transparency in ease of doing business, the report said.

But while the country’s bureaucrats dither, smaller Asian economies like Vietnam, Indonesia and Malaysia are benefitting from the rejigging of global manufacturing supply chains.

The standoff between the world’s two biggest economies has already resulted in some companies shuffling operations. Toymaker Hasbro, personal-care products company L Brands, and fashion designer Steven Madden are contemplating reducing their reliance on Chinese manufacturing. Gaming company Nintendo and electronics manufacturers Sharp and Kyocera have announced plans to shift some production to Vietnam.

iPhone-maker Apple has said it will move 10-15% of its manufacturing to India. Other tech companies are also planning to move. Computer makers HP Inc and Dell Technologies are reportedly planning to move up to 30% of their notebook production out of China.

Succeeding in India, a country of 1.3 billion people, has become crucial for many corporations seeking large markets. US-India Strategic and Partnership Forum president Mukesh Aghi told PTI news service that a number of companies are consulting the forum on investing in India as an alternative to China.

“There is a deluge of companies keen to not only manufacture in India but who also want to go after the domestic market,” Aghi said. “If you look at our member companies in the last four years, they have invested over US$50 billion in India.”

Mark Linscott, the former assistant US trade representative for South and Central Asia, also spoke of working with USISPF member companies to come up with recommendations on what India needs to do to enhance its exports.

While this interest is good news for India, currently struggling with an economic slowdown and soaring unemployment, some wonder if it is really prepared to receive these companies.

Though Prime Minister Narendra Modi has been promoting his ‘Make in India’ campaign since 2014, analysts say several bottlenecks to the setting up of manufacturing facilities remain.

Make in India is largely aimed at attracting capital and technological investment and sets out 11 areas of focus. But so far, the results have been mixed. For instance, despite the buzz since 2015 over Foxconn investing US$5 billion in multiple assembly plants and even building a world-class factory in Andhra Pradesh, the promised major investments have failed to materialize.

However, government officials say this isn’t the case. One senior bureaucrat in the commerce ministry said manufacturing in India has tremendous potential with cheap labor, rising domestic demand and the need for multinationals to diversify their production locations. He said India received its highest ever foreign direct investment inflow of $64.37 billion last fiscal.

Critics, however, point out that most of India’s growth of late is driven by the services sector and manufacturing has taken a back seat. American economist and Nobel Prize winner Paul Krugman said last year that India needs to accelerate its manufacturing pace. “India’s lack in the manufacturing sector could work against it, as it doesn’t have the jobs essential to sustain the projected growth in demography. You have to find jobs for people. The right way to do that, in my opinion, is to create a manufacturing strategic plan for the nation and its states,” Krugman said.

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