Can India replace China as the world’s factory?

Can-India-replace-China-as-the-worlds-factory | ChineeKum | Cheeni Kum | Chinee Kum

If there is one thing that the COVID-19 pandemic has taught the world; it is that everyone was over-reliant on China for everything. From the key ingredients used to make cleaning agents to medicines to electronic equipment to something as simple as a surgical mask, everything was ‘Made in China.’ 

Now that the Coronavirus has infected millions of people across the world, China is facing an unprecedented global backlash that could destabilise its reign as the world’s factory. Which brings us to the question: Is the global boycott of China an opportunity for India to attract global corporations? This could bring more investments, jobs and a transfer of technologies as well. 

How India is rising to the task.

“China’s weakened global position is a blessing in disguise for India to attract more investment,” said transport minister Nitin Gadkari in a recent interview. The northern state of Uttar Pradesh, which has a population the size of Brazil, is already forming an economic task force to attract firms keen to ditch China. India is also readying a pool of land twice the size of Luxembourg to offer companies that want to move manufacturing out of China, and has already reached out to 1000 American multinationals.

“This outreach has been an ongoing process,” Deepak Bagla, Chief Executive of Invest India, the government’s national investment promotion agency told the BBC. “COVID will only accelerate the process of de-risking from China for many of these companies.” The Indian government is also considering further liberalising Foreign Direct Investment (FDI) rules in certain sectors to make our economy a more attractive investment destination. All in all, it’s a favourable approach to cash in on the global anti-Chinese sentiment. 

The challenges that lie ahead.

The red carpet that India rolled out to welcome future investors is more likely to trip them instead of ushering them in. Even though things look good on paper, India’s recent history shows that the country’s economic climate and government policies are not exactly business-friendly. Indian government abruptly decided to opt-out of the Regional Comprehensive Economic Partnership (RCEP) last year after signalling it was keen on joining, a move that could negatively impact textile, automobile and electronics manufacturers for years to come.

Land and flexible labour laws are important, but ultimately it is only one part of a much larger matrix of factors that include electricity costs, logistics and availability of materials. Infrastructure, ease of doing business and tariff regimes also matter, and these fronts where India scores poorly.

The bottomline 

The pandemic has prompted a broader reassessment of the risks of global supply chains and our overall preparedness to combat underlying issues. More and more companies are leaving China for greener and economically viable pastures – the most recent ones being Samsung, Hasbro, Apple, GoPro and Nintendo.

Although, this does not necessarily represent a win for the Indian market, what it proves is that the Indian government does have an opportunity at their hands to expedite economic growth and make a big push for that ambitious $5 trillion economy dream. The time is ripe for India to bring in structural reforms and use these sweeping geopolitical shifts to modify its trading relationship with the world.

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