Will India take over the role as global manufacturing hub from China?

Avatar for Sowjanya Putrevu

China has been the world’s manufacturing hub for many decades. It is therefore no wonder that China controls global supply chains. Last year, after the start of the US-Chinese trade war, many companies started to see the need for supply chain diversification to reduce their dependency on China. Growing wages, theft of intellectual property rights, political fights and the Covid-19 supply chain shock have all but added to the concerns for dependency on China’s silk road. China’s intransparency during the start of the pandemic accelerated an exodus of companies. All of them looking for other places to setup factories for production. All neighboring countries are therefore presenting themselves as attractive low-wage alternatives for manufacturing companies. Among the choices are Vietnam, Malaysia, Indonesia, Bangladesh, Thailand, the Philippines and India.

India has launched the “Make in India” initiative in 2014, to attract foreign direct investment (FDI) to set up factories in the country. India offers low wages, skilled workers, a young population, an abundance of natural resources, good transport infrastructures, and is a huge market itself. At the same time, its colonial past took care of a democratic legal framework which makes it attractive for Western countries. At the other hand, corruption and the lack of legal enforceability of contracts is still a major problem.

Replacing Chinese products is easier said than done. The dragon country has over the past 30 years developed its manufacturing capabilities, but India has just started this process. In India it is very difficult to deal with political issues and corruption. Nevertheless, the will to improve has grown in India. And export tariffs on Chinese products have helped India to attract more FDI in the service and automotive industries. India already roped in major automotive producers. Producers like Suzuki, Hyundai, and Kia Motors, and tech supplier Toshiba for setting up lithium-ion battery storage plants.

It is still a long winding road ahead before India can even aspire to become the worlds factory. But, the current pandemic provides an opportunity as never before. Now, is the time for India to form a cross-border industrial ecosystem and become at least an alternative manufacturing hub. Helping to mitigate the risks of disrupted global supply chains as we have recently been witnessing.

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