India Can be the World’s Great Back-up Factory

Context: The enthusiastic response from global manufacturers to a government incentive scheme could well be a prelude to greater inward investment.

Impact of Production-Linked Incentive (PLI) Scheme:

• Growth in Output and Exports: The government expects the initiative to result in output worth ?10.5 trillion over half a decade, about 60% of it from exports. 
• Increased Foreign Investment: Interest is shown by Apple Inc’s supply network in expanding operations to India including Foxconn and Samsung.

• Emergence of Newer Technology: High-end electric car by Tesla is expected to be launched and manufactured in India.

Factors in Favour of India:

• Withdrawal of firms out of China: Global value chains that have gained appeal among transnational corporations are keen to diversify their sources of supply.
• India as a safer bet: As a constitutional democracy sworn to uphold the rule of law, India ought to be considered a far safer bet.

Factors Against India: 

• Retention by China: A recent survey of over 200 US firms operating in the People’s Republic revealed that only about 4% were shifting some production back to the US.

• China remains an attractively cheap place to make stuff, and also offers a huge domestic market.

• Rise of Bamboo Curtain: Like the iron version of the Cold War era; foreseeably splitting the world apart into western and eastern blocs.

Way Forward:

• Improve Ease of doing business: Cherry-picked businesses should not be given privileges at the cost of people at large as done by Chinese Government.

• Land and Labour Reforms: Wage flexibility is crucial for any large-scale export venture, but there are plenty of other steps need to be taken:

• Robust Land Acquisition Policy: Investors to be provided  options beyond state-earmarked parcels.
• Skill and infrastructure gaps must get plugged.

• Stable policy environment:

• Reducing flux in import-export duties by introducing stable policy based approach; Every link in a global value chain operating across borders, must be able to project its cost reliably.
• Simplifying Taxation structure to have increased compliance.

Conclusion: For India to strengthen its appeal as a country to set assembly lines rolling in, we must not draw the wrong lessons from China’s success.