Is India the next Global Manufacturing Hub after COVID-19?

Is India the next Global Manufacturing Hub as more than 1000 of companies consider an exit from China after COVID-19?

As per reports, 1000s of foreign companies are thinking about moving their manufacturing bases from China to India, as the world economy has been slowed down due to the fatal Coronavirus Pandemic trapping the whole world inside their homes.

♦India emerges as the next global manufacturing hub

  • According to the reports, around 300 of these foreign companies are planning of setting up manufacturing in India from different sectors such as electronics, medical devices, mobiles, textiles and synthetic fabric etc.
  • The companies have been in talks with Indian authorities at various levels, inputs state.
  • Evidently, when the COVID-19 crisis is controlled, the government officials are hoping about the possible relocation of the manufacturing bases in India. India will emerge as the next manufacturing hub for the world.

♦Why companies are moving from China?

  • A majority of the nations such as the US, Japan, South Korea currently depends on China.
  • But after China’s disastrous role in managing the deadly virus outbreak, these countries are deeply thinking about moving their bases.

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♦What different countries are doing for this?

Countries are asking their companies to either move their production units or set up alternate units outside China.

  • Japan has announced USD 2 billionfinancial assistance for its companies to relocate production out of China and other countries are supposed to follow the same act.

At the same time, the US has continued its attack on China with US President Donald Trump stating that the virus could have been stopped in China before it started and it wasn’t, and the whole world is suffering because of it.

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♦What is India’s take on the possible relocation of the companies in India?

India is being considered as an alternate manufacturing hub by these companies.

And our government also have taken up their proposals across various levels of the government, including central government departments, Indian missions abroad and state industry departments.

  • The official said, “About 1,000-odd companies are currently engaged in discussion at various levels such as investment promotion cell, central government departments and state governments. Out of these companies, we are targeting 300-odd companies“.
  • The Indian government has reduced the corporate tax to 25.27 % and further slashing it down to 17 % for new manufacturers which is the lowest in South East Asia. The govt. has taken these actions to attract foreign investment.

As a single tax structure in the form of GST is implemented and as the tax rate is reduced, India hopes to attract significant foreign investment in the manufacturing sector.

♦What are the challenges for India in this?

  • But still, it is a challenge for India to match the production costs with China because the production cost difference between India and South-East Asian countries is about 10-12 %. However, India still attracts manufacturers because of its large market size.
  • For example, in the case of mobile phones. “There is a huge market for mobile phones costing less than $100 in India, and there is a huge potential for export for mobiles costing $200 or more. So, from the 10-12 per cent (percentage cost difference between India and South East Asia), almost 6-7 per cent is negated or adjusted by India’s market itself. For the remaining 5-6%, a combination of state incentives and central incentives are there.

Conclusion 

Because of the market size in India and also India being a possible hub for exports in the region, India is generally considered an attractive destination. That is the reason FDI has been recording very impressive growth in the last 5-6 years.

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