Welcome to our next post on this topic, in this post we will cover how COVID -19 pandemic and US- China tensions have opened a window for India ?
Domestic pull and global push factors are serving as a tailwind for foreign direct investment (FDI) into India. In fact, according to government estimates,2020 could be a record year for FDI with USD 161bn estimated to be in the pipeline, double that of 2019.
Global giants such as Facebook and Google and many others have invested more than 2.1 Lakhs crore in Jio Platforms, the the telco and tech arm of India’s most valuable listed company, Reliance Industries Limited.
India being treated as a ‘dumping bazaar’ to now 'attracting Investors'
Global companies that once thrived on the efficiency and low costs of Chinese production have begun seeking supply-side diversification and resilience. This trend was set in motion by the tariff war between China and America, and is likely to accelerate in the aftermath of Covid-19.
As per the US-India Strategic and Partnership Forum, 200 American corporations had already sought to move their manufacturing bases from China to India in mid-2019. More recently, reports from South Korea and Japan suggest that their firms have also evinced interest in migrating towards production-conducive economies like India, Vietnam and Thailand.
Wistron, a Taiwan-headquartered manufacturing partner for Apple, has set aside one billion dollar for expansion in India, Vietnam, and Mexico to address supply chain risks emanating from China.
What makes India a attractive destination for Investor ?
What really sets India apart from other non-China competitors as a manufacturing base its large and fast-growing domestic market, which can absorb a large share of a company’s output. A study by the Brookings Institute found that India’s middle class (income range of USD 11–110 per person per day) is growing fast and is on its way to become the second largest in the world by 2030.
Despite having essential resources like land, low cost labor and coal, India has missed out on developing a strong manufacturing setup. It largely skipped to cultivating a robust services sector (~56% of GDP), but the lack of a strong manufacturing base has limited India’s growth potential— services have a smaller multiplier effect on capital expenditures and employment.
India land acquisition reforms is a major challenge for India in developing a strong manufacturing setup. Investors have been frustrated by India’s excruciatingly cumbersome land acquisition laws that result in heavy cost and time overruns. Access to technical expertise and financial capital is more easily available to foreign investors. However, the stringency of land laws has, so far, prevented the proliferation of commercial activity in the manufacturing sector, and dampened foreign investor sentiment.
Initiatives such as “Make in India” and “Aatam Nirbhar Bharat” endeavor to bolster the country’s manufacturing footprint, improving lifting FDI in the process and raising India’s share of exports globally; at 1.7%, India’s export share is a fraction of China’s (13.2%).
Why the move to India?
“Most MNCs would not like to put everything under one geography given this kind of disruption. The focus while creating new supply chains and reorganising existing supply chains is de-risking and diversification· India now has a very attractive direct tax regime with tax rates as low as 15 per cent for new manufacturing companies.
Coupled with the state level incentives, removal of the dividend distribution tax and the huge domestic market, India has become an attractive option.
Conclusion : China needs to consume more, India needs to invest more.
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Stay tuned and watch this space for our upcoming posts on "India's Reform Roadmap" as a part of our knowledge series on this much debated topic "Is India the new China"
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1. UBS research report and articles
2. The Print published news articles
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