Manufacturing in India: How does COVID-19 present an opportunity for India?

This decline in China’s supremacy presents an opportunity for India to attract investment by housing businesses that are vacating or are going to vacate China sooner or later. India is already developing a land pool nearly double the size of Luxembourg to lure manufacturing businesses moving out of China. This due to an already existing outreach which is an ongoing process for multinationals looking to diversify their supply chains away from China. Around 1000 companies have already shown interest in India. Corona has only accelerated this process of de-risking from China. 

India has a competitive advantage in terms of land and labor availability. India also has the scale advantage. Also, Indian government has been proactively investing in manufacturing infrastructure.

However, investment is only possible if India is able to make like-for-like replacement possibilities in terms of land and electricity is easily available. Furthermore, governmental clearances have to be in place to (help companies) de-risk on a permanent basis (it is an opportunity). ‘The government has helped with this 15% taxation which together with this narrative if we now get to the administrative side to offer a plug and play model with our advantages it is an opportunity for us. But we have to be faster and better than other competing countries.’ - Hitendra Dave, head global banking and markets at HSBC India.

Also, “India continues to be among the top destinations in Asia for manufacturing shift. Trade data confirms market share gains for India in exports to the US, for tariff-imposed products.” - Union Bank of Switzerland.

A couple of big majors, including the Chinese manufacturers, are already setting up plants in India. It is expected that telecom, electrical, and electronics will move in over the next 18-24 months after which semiconductor manufacturing is projected to follow. 

It is believed that, Vietnam, Bangladesh, South Korea and Taiwan also seem to be favorites to benefit from the backlash against China. The latter two at the "high-tech end of the spectrum" and Vietnam and Bangladesh at the lower end. Multinationals began moving production out of China into these countries nearly a decade ago due to rising labor and environmental costs. 

India is believed to have lost out so far because it had failed to create conditions allowing multinationals to supply not only the local market, but also to use the country as a production base to export to the world. 

However, this time, several Indian states have proactively made moves to address some concerns around the ease of doing business - prime among them being making contentious changes to India's archaic labor laws, put in place to reduce exploitation.

The state of Uttar Pradesh, for instance, has suspended significant labor protections exempting factories from even maintaining basic requirements like cleanliness, ventilation, lighting and toilets. It decided to suspend 35 of the 38 labor laws in the state for three years to attract much-needed investment. Three laws have been exempted from the ordinance: the Building and Other Construction Workers Act, 1996; the Workmen Compensation Act, 1923, and the Bonded Labour System (Abolition) Act, 1976. Section 5 of the Payment of Wages Act, which relates to timely payment of wages, will also continue to be in force.

It is a known fact that international companies have strict codes of conduct on labor, environment and safety standards for suppliers and understandably so. One is often reminded of the 2013 collapse of the Rana Plaza garment factory in Bangladesh that supplied retailers like Walmart. The collapse forced Bangladesh to improve its factory infrastructure and safety to attract more investment. 

For India to be an attractive investment destination for manufacturing, it has to follow even better standards if it wants to complete with the alternatives that the world already has its sights on. 

Are you a business situated in China and interest to move your business to India? Miss Legal India can assist you with all your queries and also help with the incorporation process.

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