With a large skilled and semi-skilled workforce, a median age of 30, and a worldwide increase in suspicion of China, India seems to be in the best place to take over China in the manufacturing sector.
Yet, India, with its less than satisfactory infrastructure and a bureaucracy that is famous for being unwelcoming to businesses, continues to lag behind China in terms of manufacturing.
Will there ever be a time when India, not China, becomes the factory of the world?
Why Is China The World’s Manufacturing Hub?
Most of the products that we use, from the TV remote to the air conditioner, might be having the tag ‘Made in China’. China became the world’s manufacturing hub because companies were glad to find plenty of low wage workers willing to work in the country.
This worked in tandem with the fact that China has actively been creating a business ecosystem that has fewer regulatory hurdles with regard to health, environment and safety.
Thus, China was able to present itself as a viable and efficient market for establishing manufacturing units for companies across the world.
Did The Coronavirus Affect China’s Standing?
China, which forms one-third of the world’s manufacturing, was the origin of the coronavirus pandemic that shook the world in 2020, essentially bringing the planet to a standstill with lockdowns across the world.
Even before the pandemic, companies were looking to shift away from China due to the US-China tariff war.
Naturally, China’s manufacturing sector took a hit at the onset of the pandemic. China’s vast and diverse manufacturing sectors took heavy hits with exports having plunged 11.4% in yuan terms in the first three months of 2020. However, by April, exports rebounded by more than 8%.
China is now counted among the few countries in the world that are expected to bounce back from the effects of the pandemic faster than most of the world.
Are Companies Shifting To India?
Despite China’s relative success at handling the pandemic within the country, the world is wary of the communist state with countries banding together to stop China from swooping in sensitive markets and taking control.
Countries realized their dependence on China and began distancing their companies from the country. In 2018-19, 56 companies moved from China, only 3 of these shifted to India, the others choosing to go to Vietnam, Thailand and Taiwan.
India has since then reached out to nearly 1,000 multinational companies looking to shift out of China. “This outreach has been an ongoing process. Covid will only accelerate the process of de-risking from China for many of these companies,” said Deepak Bagla, chief executive of Invest India.
“Many of these companies are facing severe cash and capital constraints because of the pandemic, and will therefore be very cautious before making quick moves,” said Rupa Subramanya, an economist.
Does India Even Have A Chance?
The likes of Samsung and Apple setting up production of smartphones in India is a sign that all hope is not lost.
India even rose in ranks in the Ease of Doing Business index, getting the 63rd rank, up from the previous year’s 77th rank.
Despite this, India continues to struggle to capture the interest and trust of the companies that are attempting to leave China. This is because India does not have the infrastructure to sustain a thriving manufacturing sector and is not yet an important part of the global supply chain.
India’s push towards self-reliance or ‘Atma Nirbharta’ is commendable, but initiatives such as that and ones like the ‘Make in India’ movement can only deliver positive results if the government also creates tax incentives, better transport & communications infrastructure, and policies that are friendly to businesses, in addition to focussing on getting over the economic slump caused in part by the coronavirus outbreak.
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