Why ‘Make in India’ can be the next best alternative in Asia?

Decisive and stable government, E-Governance & transparency, Reformed Land & Labour Laws, and improved EODB are India's New Normal… Says Manish Panchal – Strategic Advisor & Industry Expert.

While the world is working towards economic recovery amidst the pandemic COVID 19. Global corporations are now muddling with a bigger question revolving Business Continuity (BCP) from operations perspective. Is this the right time to rethink de-risking your manufacturing setups and look for alternate options in Asia?

In this difficult time companies that had multi-location manufacturing operations were the ones who could deliver goods on time. Though the demand was subdued due to multi-country lockdown, but going forward for global corporations it will become a critical ask to re-look at all Products Value Chain and align operations to make it most optimal.

It is observed that global players are looking for trusted countries and reliable alternative partners.

Typical choice of locations not only involves preference of low manufacturing costs to help reduce operational expenses and increases profits. But, many other factors go into finding the best country for mass manufacturing. These are Countries with relatively stable political and economic environments, modern infrastructure, a compatible legal system, availability of efficient skilled labour, availability of KRM and other resources ideal for sourcing. And, to top it all a captive market with reasonable demand size and future growth.

Let’s look at how India will fare on some of these parameters in terms of global ranking.

As we see that stable, committed and decisive government has worked to improve global ranking on several aspects. It is important to note that India has a consumption driven growth story and availability of skilled labour force is not a challenge. Hence it becomes an attractive prospect for global players to invest in next growth story, that is India, as an alternative manufacturing hub for Asia.

To attract and reciprocate these sentiments government of India has reignited its plan ‘Make in India 2.0’.

This will accord renewed focus on champion sectors, including capital goods, auto, defence, pharma, renewable energy, biotechnology, chemicals, electronic system design and manufacturing, leather, textiles, food processing, gems & jewellery, construction, shipping and railways. Objective is to push growth in manufacturing sector and create job opportunities.

The government has identified these sectors which have the potential to become global champions and drive double- digit growth in manufacturing.

Today, manufacturing sector contribution to GDP is around 17% and Government is targeting it to go up-to 20% of GDP valued at USD 1 Trillion by 2024.

To fulfill this aspiration, in one of the recent development, government of India has approved several schemes and financial assistance.

For example for Electronics and Electricals Manufacturing sector benefits announced include:

Scheme for Promotion of manufacturing of Electronic Components and Semiconductors (SPECS): wherein it propose to offer a financial incentive of 25% of capital expenditure for the manufacturing of goods that constitute the supply chain of an electronic product under the Scheme.

This will cater to all segments of electronics manufacturing such as Mobile Electronics, Consumer Electronics, Industrial Electronics, Automotive Electronics, Medical Electronics, Strategic Electronics, Power Electronics, Telecom Equipment, Computer Hardware etc. The total cost of the scheme is approximately USD 438 Million.

Production Linked Incentive Scheme (PLIS) for Large Scale Electronics Manufacturing: The approved scheme proposes production linked incentive to boost domestic manufacturing and attract large investments in mobile phone manufacturing and specified electronic components including Assembly, Testing, Marking and Packaging (ATMP) units.

The Scheme will offer an incentive of 4% to 6% on incremental sales (over the base year) of goods manufactured in India and covered under target segments, to eligible companies, for five years after the base year as defined. The total cost of the proposed scheme is approximately USD 5.46 Billion.

Modified Electronics Manufacturing Clusters Scheme (EMC2.0): For this Scheme, an Electronics Manufacturing Cluster (EMC) would be set up in geographical areas of a certain minimum extent where the focus is on the development of basic infrastructure, amenities and other common facilities for the ESDM units.

The focus is on upgrading common technical infrastructure and providing common facilities for the ESDM units in such EMCs, Industrial Areas/Parks/industrial corridors. The total outlay of the propose EMC 2.0 Scheme is USD 500 Million

These are a few glimpses of just one sector, similar plans have been worked out for Defence, Automotive and other focus sectors. Thrust is on technology driven futuristic industry and businesses.

It is recommended that all Fortune 500 companies should revisit their India Strategy. Traditional trading approach may not yield results in terms of sales volume as one can expect with domestic presence.

Transnational companies like Abbott, Glaxo, Coco-Cola, Colgate, Mondelez, Nestle, Ford, BASF, Suzuki, Honda, LG, Samsung and many more have benefited from long term India presence and are having decent domestic revenues and are competitive in export markets.

India has Free Trade Agreements (FTA) with several nations, including ASEAN, SAFTA, South Korea, Japan and few others which are in effect or under negotiating stage.

Hence it would be the right time to re-look entire product supply chain to optimize for better future.

Conclusion:

India has significantly improved on various counts of Ease of Doing Business (EODB). Demographic dividend and aspirational growth plan of USD 5 Trillion economy by 2024 will open-up opportunities is several business areas. It is critical for global companies to revisit India Region Growth story with investor mindset instead of trader mindset.

Finally I would say, come and experience the change from Red Tape to Red Carpet by investing in 'Make in India 2.0'.   

Disclaimer: Above views are authors personal view and not of a particular organization.