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Amidst ‘US-China Trade War’, Has India Emerged a Preferred Destination for Manufacturers?

US China trade war

Much has been discussed in the media about what is popularly referred to as the ‘US-China trade war’ and its possible impact on the world. The relevant angle for us is to examine whether India is able to turn this situation to its advantage. There may be other reasons as well for companies shifting their base from China. But where do they go from there? What does the trend suggest?

Recently, a tweet from Eric Bellman, the South-Asia deputy chief for the Wall Street Journal went viral about the latest iPhone XR, one of the most sophisticated smartphones in the world is being assembled in India.

The phones which are being assembled at Foxconn’s factory in Chennai used to assemble them in China previously. They had moved their manufacturing from there to India late last year.

This is actually one among a series of companies that are moving their manufacturing and production out of China to India. US-China trade war, a shrinking workforce, and increasing labour costs are among the many reasons cited by manufacturers to move production out of China.

Manufacturing exodus out of China

In fact, a report by Credit Suisse which surveyed 100 companies with global sales of 1 trillion dollars will shift out of China. India along with Vietnam and Mexico are countries these companies are looking to invest in. The report also says the shift could yield 350 to 550 billion dollars in exports.

Other than Foxconn, many other companies have also already shifted or have started shifting their production line out of China to India including Samsung and Sketchers, a leading American shoe company. Samsung in 2019 closed its production facility in China and expanded its production facility in India to boost efficiency. Samsung had, in fact, opened the world’s largest mobile factory in Noida last year with a capacity to produce 120 million units of mobile phone by 2020. It was inaugurated by PM Modi and South Korean President Moon Jae-in.

The Foxconn India factory which we had mentioned above also manufactures Amazon Echo at the same factory and already employs 30,000 workers and could double that figure in the coming years. Local sourcing norms have ensured Foxconn sources locally from 300 Indian parts suppliers, contributing to Foxconn’s capacity of more than 50 million phones a year.

Recent Steps to boost Make in India

The government led by PM Modi has taken a number of decisions in the recent past to capitalize on this shift of production out of China and boost manufacturing in India.

The Government’s decision to slash corporate tax rates to as low as 15%  (for  manufacturing companies incorporated after 1 October 2019) has already made India one of the most competitive destinations for manufacturing on par with peers in Asia and across the globe. This move of offering one low rate—instead of negotiating one-off deals with foreign investors that are sometimes disputed by tax authorities—will clear up the confusion foreign companies face when investing in India.

The Commerce Ministry also recently announced that foreign companies which invest 500 million dollars or more into India will have a designated person to facilitate all clearances- from central governments to state governments and local bodies and answer any investor queries and enhance flows.

Finance Minister Nirmala Sitharaman is also preparing a blueprint for international companies which are looking for manufacturing beyond China. However, Sitharaman said the government’s decision is not just going to be purely on the basis of what is happening presently between the United States and China.

But the fact remains that there are companies which are looking at relocating for various other reasons also. She added that she will highlight why India is a far more preferable destination for manufacturers. She also said that this could be extended even for specific areas in which India has common capacity ecosystem building, whether it’s electronics, lithium-ion battery or semiconductors.

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