Is China losing its dominion over the supply chain that it held for years? And perhaps India should gain from the fallout as the US and the west have shown their serious inclination towards India as a potential alternative albeit with lesser red-tapism and enhanced skills. There is an increased apprehension about Chinese-made goods as some sensational revelations from Britain disclosed that Chinese cameras installed in vital locations of the UK carried in-built surveillance chips. Besides, there is a growing consensus to constrain China’s economic hegemony as the world is watching closely and have become wary about its alarming expansionist approach.
As Western nations have become increasingly concerned about over-reliance on China, there is a growing agreement among policymakers and analysts that India is emerging as an alternative and preferable production base to China. But the country must address various challenges ranging from red tape to skills shortages if it wants to capitalize on Western diversification. Although India is determined to grab the opportunity and benefit economically from Western concerns and their inclinations to broaden their horizons from China to India, it is imperative for the government and the vibrant private sectors in India to create a conducive platform that may transform the Indian economy and the manufacturing sector to greater heights. A very robust future for the Indian economy and manufacturing is on the anvil as we have witnessed how China has grown economically in the recent past while being a manufacturing hub for the globe.
US Treasury Secretary described India as an indispensable partner
The recent visit of US Treasury Secretary, Janet Yellen, in her visit to the country affirmed US concerns about growing Chinese hegemony and she described India as an “indispensable partner” in the US quest to diversify its supply chains.
A day later, former Australian Prime Minister Kevin Rudd expressed a similar sentiment. He categorically mentioned that India has developed enormously in the last 20 years and there is a significant policy shift and a growing consensus among all developing and developed nations for considering India as a potential manufacturing base and supply chain alternative to China.
India is fast emerging as an alternative production base to China amid efforts by Western nations to diversify.
As Western nations have become increasingly concerned about over-reliance on China, a few countries stand to gain more and one of them is definitely India. What we are seeing geopolitically today is effectively a new cold war and against this backdrop, India is determined to benefit economically from Western concerns about growing Chinese hegemony.
While China’s growth outlook has been slashed to 4.4 per cent next year by the International Monetary Fund, investment bank Morgan Stanley has projected India’s economy to expand at 6.1 per cent on its way to becoming the world’s third-largest economy by 2027.
India is also part of the Quad, an alliance that includes the United States, Australia and Japan, which is “the most potent symbol” of its growing bond with the West.
India has seen a surge in FDI in recent years, receiving its highest-ever inflows over 2020-21 at US$81.97 billion. Last year’s investment figure was more than double the $39.9 billion recorded in 2017.
Indian Government brought significant reforms
While the Indian government’s significant reforms have made the country more alluring to multinationals, the growing distrust of China has added a bonus to its projection of a more enviable manufacturing hub. The Indian government has undertaken labour market and tax reforms, embraced digital technologies, and made improvements to soft and physical infrastructure that makes it an ideal alternative to China.
Morgan Stanley predicts India’s manufacturing growth could increase from 15.6 per cent today to 21 per cent in 2031, doubling the export market share of the world’s fifth-largest economy.
“India is gaining power in the world order, and in our opinion, these idiosyncratic changes imply a once-in-a-generation shift and an opportunity for investors and companies,” Ridham Desai, Morgan Stanley’s chief equity strategist for India, said earlier this month.
Many Multinational companies have started their venture in India
Multinational companies have started taking serious initiatives. Apple supplier Foxconn is increasing capacity at an existing factory in Chennai as Covid-19 disruptions threatened production in China. Apple’s Taiwanese contract manufacturer, Pegatron has also begun assembling the latest iPhone14 in India.
Apple’s shipments to India are increasing steadily and local demand for Apple products is increasing with the increased purchasing capacity of the locals and there is great potential for India to become the biggest market for consumer electronics.”
Tech giants like Google and Samsung are also planning to shift some of their manufacturing units to India, to benefit from the government’s production-linked incentive scheme.
There is the reasoning behind Indian policymakers’ thought process – companies are going to diversify to reduce their risk because the geopolitical situation is so volatile, and so part of your risk management strategy would be not to put all your eggs in China’s manufacturing basket.
India has seen notable investments in sectors dominated by China.
In September, Indian mining multinational Vedanta Resources and Foxconn announced they are coming together for the establishment of India’s first semiconductor plant in the state of Gujarat.
Last year, First Solar announced the set-up of a vertically integrated solar module manufacturing facility in the state of Tamil Nadu.
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China accounts for 80 per cent of global solar panel production. It is also the fourth largest manufacturer of semiconductors, with a global share of 15 per cent in 2020, according to the Australian Strategic Policy Institute. The balance right now is still strongly tilted towards China and other countries are trying to get a slice of the pie.
“India is hoping to be seen as part of a more reliable supply chain, a supply chain that believes in modest democratic values.”
However, great challenges stand in the way of India living up to its promise.
“The reform agenda is hardly complete yet and much-needed clean-up of the banking sector and further enhancements to public governance and infrastructure are mandatorily required.
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India cannot afford to be complacent as serious competitors are also striving hard
India cannot count on a clear playing field, competitors such as Vietnam, Mexico and Chile are also striving hard to grab any attempts by US and other Western firms for diversifying their production bases away from China”.
Although there is no shortage of labour a relative shortage of skilled labour is one of the few impediments. India’s protectionist tendencies are also an oft-cited concern. Despite entering into a slew of bilateral agreements with countries such as Australia, the United Arab Emirates, Canada and Britain, the government is wary of entering into multilateral trade pacts. Although India is trying to make it more attractive to get a larger slice of the pie in an environment that is geopolitically favourable for the country, many challenging reforms are the need of the hour.
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