Shift in supply chains from China can be an advantage for India

Last updated on February 15th, 2023 at 12:23 pm

With diplomacy dynamics changing globally and due to Covid-19, many companies, enterprises and supply chains are moving out of China. With incentives to grab this opportunity being in place by Indian government, the expected result is coming forth with companies like Samsung Electronics Co. and Apple Inc and their assembly partners showing interest in extending operations in India.

In March, Prime Minister Narendra Modi’s government had announced a set of incentives that would make the niche firms like electronics companies eligible to get a payment of up to 4%-6% on the incremental sales for five years. The result was that over two dozen companies pledged investments of over $1.5 billion to set phone factories in the country – a huge boost to India’s economy and better prospects for country’s financial recovery post pandemic.

Similar extension of incentives have been offered by Hon Hai Precision Industry Co., which is known as Foxconn, Wistron Corp. and Pegatron Corp. India in the pharmaceutical sector, and plans to extend to other arenas like automobiles, textiles and food processing.

However, the expected mass gain for India through the shift of companies from China amid the trade war between US and China and the Covid-19 pandemic is not yet translated, even though India is offering much cheaper avenues for these companies to set a base. According to a survey by Standard Chartered Plc, Vietnam is still the favourite, followed by Cambodia, Myanmar, Thailand and Bangladesh.

Kaushik Das, chief India economist at Deutsche Bank AG in Mumbai said, “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.”

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Expectancy from the electronics companies in India is to get a product worth of $153 billion in next five years, while creating employment for at least 1 million people in country directly or indirectly. Experts suggest that this could additionally bring a business investment of $55 billion over five years. This means addition of 0.5% to India’s economic output. This development is in line with PM Narendra Modi’s goal to increase the manufacturing revenue share in the economy to 25% from15% under government’s ‘Make in India’ program. In leu of this the government has already reduced taxes on companies, making them among the lowest in Asia. This is an attempt to attract new investments in the country’s economy which is headed for its first contraction in over four decades this year.

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