Changing supply chains Post-COVID: China’s loss could be India’s gain

India’s extensive efforts to entice businesses to move towards the nation from China begin during the US-China trade war and was hyped during the outbreak of the pandemic. With companies like Samsung Electronics Co. to Apple Inc.’s assembly partners showing interest to invest in the South Asian nations display a positive result.

The Centre government led by Narendra Modi in March announced incentives that make niche firms such as electronics manufacturers eligible for a payment of 4%-6% of their incremental sales over the next five years. As a result, near about two dozen companies pledged $1.5 billion of investments to set up mobile-phone factories in the country.

Companies such as Hon Hai Precision Industry Co., known as Foxconn, Wistron Corp. and Pegatron Corp have also shown their interest in taking forward investments in the nation.

 Apart from electronics, the nation has also extended similar incentives to the pharmaceutical sector, and further eyes to cover more sectors, which may include automobiles, textiles, and food processing under the program.

Although India is making it cheaper to do the business, it hasn’t yet made big gains as companies plan to diversify their supply chain across nations amid the US-China trade tensions and the coronavirus outbreak.

According to a survey conducted by standard Chartered Plc. Vietnam remains the most favoured destination, followed by Cambodia, Myanmar, Bangladesh and Thailand.

“There is a reasonable chance for India to gain in terms of incremental investment of supply chains within the country over the medium term. These programs are aimed at increasing India’s manufacturing share in the gross domestic product.”

~ Kaushik Das, Chief India economist at Deutsche Bank AG in Mumbai

A Major Economic Boost

As per the government, the program for electronics alone could lead to $153 billion worth of manufactured goods over the next five years and could create about one million jobs directly and indirectly.

According to a report written on Aug 10 by analysts led by Neelkanth Mishra at Credit Suisse Group AG, this would bring an additional investment of $55 billion over five years, adding 0.5% to India’s economic output. Further, this could shift an additional 10% of global smart-phone production to India in five years, most of it from China.

This will complement the PM’s goal to grow the share of manufacturing in the economy to 25% from the current around 15% as part of his ‘Make in India’ program. In a bid to attract investments in the nation his government has already lowered taxes on companies to among the lowest in Asia.

The latest output-linked incentive plan is a “big win for Make in India,” Amish Shah, an analyst at BofA Securities, said in a report to clients. He sees gains for industrials, cement, pharmaceuticals, metals and logistics, with long-term indirect benefits across many sectors.

Source: Bloomberg

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