On paper, India’s chances of attracting global manufacturers look rosy, but experts warn that lasting gains to improve a sluggish manufacturing sector are not within sight.
Apple Inc began assembling its latest iPhone models in the South Asian nation in a significant break from its practice of reserving much of that for Chinese factories run by its main Taiwanese assemblers, a key win for Indian Prime Minister Narendra Modi’s “Make in India” campaign.
Among India’s advantages are rising geopolitical tensions between Western nations and China, and a growing friendship with the US, Australia and Japan, which form part of the Quadrilateral Security Dialogue, a grouping of democracies to counter Beijing’s economic and military ambitions.
Photo: EPA-EFE / PIB
The country’s presidency of the G20 this year could also boost investor confidence. India is poised to hold the title of the world’s fastest-growing large economy in the next three years. Its GDP is set to become the world’s third-largest before the end of the decade.
However, experts have said that improvements to the manufacturing sector are still a ways off for India, a country of 1.4 billion people.
Modi’s “Make in India” campaign, which aims to increase exports and create jobs, has not quite panned out. Manufacturing accounts for 14 percent of the economy, a figure that has barely budged in decades, and despite India’s massive demographic dividend, unemployment remains stubbornly high.
Photo: REUTERS
Since the campaign was launched in 2014, the deadline for one of its key goals — to lift the share of manufacturing in GDP to 25 percent — has been pushed back three times, from 2020 to last year to 2025.
Amitendu Palit, an economist specializing in international trade and investment at the National University of Singapore, said decoupling from China has “not yet been pronounced.”
In other words, for any meaningful relocation of supply chains, Palit said Modi’s government would need to prove that India is a cheaper and easier place to conduct business, rather than simply relying on political or security factors to lure companies.
While financial incentives imposed under Modi offered Apple a cost-efficient path to set up shop in India, the California-based company is still making a fraction of its iPhones in the nation.
For every success, there are many companies that have quit India because of long-running challenges, such as dealing with the country’s bureaucracy, including General Motors Co, Ford Motor Co and Harley-Davidson Inc.
Friend-shoring, in which allies invest in each other, and a wider pivot away from China could benefit India — although the speed of change is far from clear.
“There is a lot of inertia,” Indian Chief Economic Advisor V. Anantha Nageswaran said.
Leaving China is not a call that companies will take lightly, as “they have invested so much in a big market,” he said.
Still, East Asian countries would eventually run into capacity constraints at some point, he said.
“So I think we need to wait for these things to play out,” Nageswaran said.
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