We all are reading various media reports with catchy headlines like ‘Companies are moving out china and India will be seizing this opportunity.’  Or ‘200+US companies are seeking to move manufacturing out of China’. And it makes us happy that India will be the ultimate beneficiary of this covid19 pandemic.

Yes, being an Indian we all share the feeling of pride. But the question is, Whether India is ready to grab this opportunity? Which countries will give stiff competition to India? Do really this opportunity is a cup of tea for the Indian government led by PM Narendra Modi?

Before proceeding further on this topic, we need to evaluate what kind of challenges stopped India to become the manufacturing hub until today? It will help us to further evaluate the current position of India.

I should start the reasons of lack in manufacturing from the independence of India. India after independence had enough problems with starvation deaths & partition refugees’ settlement.

Indians who had money to invest didn’t do so due to clear cut governmental policies & *Licence Raj*. Those who did had to face Trade Union & Workers Union problems.

After the 1991 economic revolution changed the government perspective toward the world economy various MNC started investing in India. But still, industries are facing several burning issues such as:-

1. Lack of technical advancement

2. Lack of research work in the field of manufacturing

3. Lack of systematic approach in large manufacturing facilities

4. Govt. Support and policy

5. Labour Union issues

6. High priced and less skilled labour

7. Lack of political will power to be pro-business

8. High Logistic cost

Apart from these major issues many other issues also faced by the industry. Today when India is at the door of biggest opportunity to be a manufacturing hub. Following figure 1.0 from world bank report give a clear indication, that is India is not even top 3 destinations for companies moving out the china.

Production Capacity

India is in the 2nd category of choice for companies moving out of china. Here, I would like to quote Mr Aaditya Mattoo, an economist with the World Bank and co-author of the World Development Report 2020 on global value chains who said “What inhibits are restrictive regulations which affect its land, labour, logistics and also its policies which affect trade and goods and services, That’s why the production that has relocated from China due to the trade war “has not gravitated toward India.”

Mr Aditya Mattoo has stated 3 key concern for companies to choose east Asian countries i.e regulations, labour laws and high logistic cost. It is a surprising fact that India’s logistic cost is three-time higher than china and two times to our neighbouring developing country Bangladesh.

Apart from Asian countries such as Thailand, Malaysia, Vietnam and Bangladesh, some of the African countries are also doing well in term of developing as a manufacturing hub. Ethiopia alone has opened many industrial parks in the last few years only.

Indian government should first and foremost acknowledge the competition, companies would not prefer to set up in India just because India is a large population country. India needs to focus on some specific sectors and their sub-sectors and should develop the most favourable condition for those sectors in India.

Current India government led by PM Narendra Modi has tried to bring reform in labour laws of the country but it is still a long pending task for the industry. India needs to put reforms in fast track mode otherwise India may miss the major part of this opportunity.

Feel Free to share your views on the same in comments.


Author Bio

Qualification: CA in Practice
Company: Ankit Maheshwari & Associates
Location: Jaipur, Rajasthan, IN
Member Since: 01 Sep 2017 | Total Posts: 4

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March 2021