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India and the US are working together, along with Japan, Korea and some other countries, to restructure global supply chains away from China and towards India.
Highlights: India and the US are working together, along with Japan, Korea and some other countries, to restructure global supply chains away from China and towards India. Around 1,000 companies have opened discussions with the Indian government, various state governments and Indian missions abroad. There are expectations of a blueprint of incentives that will help neutralise the 10-12 per cent cost advantage that many South East Asian countries offer over India.
Taking their strategic engagement a step further, India and the US are holding talks on “restructuring global supply chains”. A recent statement by US Secretary of State Mike Pompeo offers the clearest indication that there is a very serious move afoot to shift the production lines of US companies away from China to friendly countries such as India.
“We're working with our friends in Australia, India, Japan, New Zealand, the Republic of Korea and Vietnam to share information and best practices as we begin to move the global economy forward... Our conversation involved global supply chains and thinking about how we can restructure them to prevent something like this (COVID-19 pandemic) from happening again,” Pompeo told the media in Washington on 30 April.
This comes close on the heels of Japanese Prime Minister Shinzo Abe announcing a $2.2-billion line of finance for Japanese companies to relocate their factories out of China. Although most of this fund will be utilised to shift production lines back to Japan, experts expect a significant share of this investment to flow to India, given the close strategic ties between New Delhi and Tokyo and the great personal chemistry between Indian Prime Minister Narendra Modi and Abe.
On its part, the Modi government in India has been putting in place the systems and creating the right conditions to attract this expected massive inflow of foreign direct investment (FDI) leaving China and looking for a new home. At least 1,000 such companies have opened discussions with the Indian government, various state governments and Indian missions abroad; at least 300 of these companies, mostly manufacturing mobile phones and related components, electronic goods, medical devices, textiles and toys are actively considering relocating to India, government sources told India Global Business.
They are attracted by the low corporate tax rate in India - last year, India had cut the corporate tax rate for all companies to 25.17 per cent and for new companies that set up shop before 31 March 2023 to 17.01 per cent, bringing India at par with the lowest tax jurisdictions among peer nations - the 79 place improvement in India's ranking on the World Bank's Ease of Doing Business Index, the skilled workforce, the incentives offered by the Government of India and various state governments and the huge size of the domestic market.
Prime Minister Modi is learnt to be personally monitoring these efforts of his various ministries. And many state chief ministers are pulling out all stops to attract investments in their states. In fact, the Chief Minister of the northern Indian state of Uttar Pradesh held a video conference in the last week of April with nearly 100 US companies such as Honeywell, Adobe, Boston Scientific, Cisco, UPS, Lockheed Martin and others to hard sell his state as an alternative investment destination to China. The state's Minister for Investments and Exports, Siddharth Nath Singh told the investors that he was even willing to tailor incentives according to the requirements of individual companies.
Such aggressive efforts by a state that is not among the industrial powerhouses in India showcases the seriousness of the government in attracting investments. India had missed out on earlier rounds of industrialisation from the 1950s onwards due to the ideological blinkers of the country's then leadership. Now, the Modi government looks determined not to miss out on the emerging opportunity thrown up by the US-China trade war and the COVID-19 pandemic.
His Cabinet is expected to clear a comprehensive strategy paper on how India should go about attracting investments in the next few weeks. This may include a blueprint of the incentives and other norms that will help neutralise the 10-12 per cent cost advantage that many South East Asian countries now offer over India.
But these are early days yet. After Make in India, the coming months will show how successful the “Move to India” campaign has been in attracting investments leaving China.