With companies wanting to move supply chains from China to other countries, will India be one of them? Will New Delhi (NCT)/National Capital Region (NCR) be the forerunner?
Covid-19 has devastated countries around the world. Anthony Fauci, the top US infectious disease specialist calls the coronavirus pandemic his "worst nightmare". It has torn things apart, forced new alliances and challenged the world order. The Coronavirus has shaken the core foundation of industries – from airline to food and beverage, to retail and manufacturing. What lies ahead for the world? While countries lift lockdowns and gradually open up, how much decline China, the 'factory of the world', will see? Will companies exit fully or partially to other countries? Will India be one of them? Will New Delhi / NCR be the forerunner?
That China has accounted for 12% of the world's GDP growth rate is largely attributable to its manufacturing capacity. Over the past two decades, China moved up the value ladder to become the world's largest exporter, supplying one-third of the market of intermediate goods (components which go into the final products) globally and came to be known as the world's 'manufacturing capital'.
Multi National Companies such as Apple have their manufacturing plants in China. Foxconn alone manufactures iPhones in 29 factories in the province of Zhengzhou and 50% of Apple's suppliers are based in China.
Wuhan, the famous epicenter of the Covid-19 pandemic, and the most populous city in Central China, has been a manufacturing hub for decades and is home to auto majors such as General Motors, Honda, Nissan, Peugeot Group, Renault and their vendors.
However, the outbreak of COVID-19 disturbed this favorable position which China enjoyed. The outbreak has brought home, for the rest of the world, the realization of an excessive dependence on China. The breakdown of manufacturing in Wuhan due to blocked supply chains left industries world over in a lurch with little ability to substitute supply of intermediary goods/ components on an urgent basis. Production was disrupted world over.
Even before the pandemic, with a tectonic shift in the policies involving mandatory rise in labor wages, implementation of tightening environmental protection regulations, and Lack of a robust IP protection, China was no longer the best place to manufacture. The growing cold war between China and the USA which gathered steam in 2018 with President Trump imposing tariffs and other trade barriers on China citing reasons such as 'unfair trade practices', added stress.
China's mishandling of the Covid-19 outbreak thereby causing avoidable deaths, which may touch a high half a million mark, and the resultant turmoil causing an ever deepening the trust deficit, was the last straw. The new coronavirus outbreak in Beijing and consequent June 17th clampdown adds to the scare. The talk of "decoupling" with China, particularly for manufacturers of intermediary goods, gets louder.
No doubt, (i) the fact that China has world class infrastructure hasn't changed, (ii) for brands as deeply invested as Apple, a partial exit only likely for now, and (iii) companies will still continue to produce and sell in China to its phenomenally huge middle class populace. It does, however, mean that China's days as the ultimate manufacturing hub are over.
The Indian manufacturing industry was stagnant for many years, and 2013 saw a negative growth. Come 2014, the Indian Prime Minister launched the "Make in India" (MII) campaign with the aim to transform the country into a global design and manufacturing hub. Other initiatives of Government of India (GoI) including Ease of Doing Business, Skill India, Digital India, tout India's Manufacturing Gross Value Add (GVA) to reach USD 1 Trillion. Additionally, 25 strategic sectors have been identified, under the MII initiative, as key opportunities for investments to initiate more policy reforms. Thus, India is focusing on the development of infrastructure, increasing and tailoring its talent pool to the needs of industry, aggressive Foreign Direct Investment (FDI) initiatives, and increasing the ease of doing business through legal and tax reform. The corporate tax rates for new companies in the manufacturing sector are now at an unprecedented low level of 15%. For existing companies, the rate has been brought down to 22%. As a result, India's corporate tax rates are now amongst the lowest in the world. This and the rollout of the Goods and Services Tax (GST) have put India on the path to become a much favored destination for inbound investments.
Sustained business reforms helped India jump 14 places to move to 63rd position in this year's global Ease of Doing Business rankings and earned a place in among the world's top ten improvers for the third consecutive year. Last year India was ranked at 77. According to a study conducted by Deloitte, India is expected to jump six ranks to No. 5 in the 2020 Predicted Manufacturing Competitiveness. India's average entry level salary for workers ranges between US$ 157 and US$ 196.
Increased U S pressure on Beijing for its lack of accountability in its role in the coronavirus epidemic, led the Indian government to reach out to over 1,000 companies in USA urging them to move operations from China to India. At least 300 of these companies are actively pursuing production plans in sectors such as mobiles, electronics, medical devices, textiles and synthetic fabric. Japan has announced an economic stimulus for its companies to shift production out of China, back to Japan and elsewhere. Countries like South Korea and USA are keen to follow Japan. Other factors that support manufacturing in India are:
Developing countries such as Vietnam are competing. However, the potential is usually decided by the size of domestic consumption and pace economic growth. India is more like China whereas Vietnam akin to South-Korea. Undoubtedly, India is a much larger market and its growth rate, presently a bit higher than Vietnam, will be faster with its accelerating reforms pace.
India's measures that promote ease of business are now at a faster pace, for example:
New Delhi is the capital of the Republic of India. Also called the National Capital Territory (NCT), it is surrounded by number of large industrial clusters which, though under the legislative jurisdiction three adjoining States, form part of the National Capital Region (NCR).
New Delhi, one of the largest Indian metropolises, was ranked at top of the charts in the 'Inclusive, Sustainable Industrialization, Foster Innovation' by Niti Aayog, a policy think tank of the GoI, in its report released in December 30, 2019. Some of the areas which are the focus of industrial development in New Delhi are:
NCR, with New Delhi as its core, encompassing several surrounding districts of the states of Haryana, Uttar Pradesh (U P), and Rajasthan, is a unique example of inter-state regional planning and development. In 1985, the Indian Parliament, constituted the National Capital Region Planning Board (NCRPD), with the following objectives: (i) Preparation of a plan for the development of the NCR; (ii) Coordinating and monitoring the implementation of the said Plan; and (iii) Evolving harmonized policies for control of land uses and developing infrastructure in the Region so as to drive a consistent development of the whole Region.
Figure 1: Map of National Capital Region. NCR consists of 23 districts – 8 from Uttar Pradesh (UP), 13 from Haryana, and 2 from Rajasthan apart from New Delhi- NCT.
Apart from being at just about 2,700 Kms from China, the NCR has India's oldest and one of the most important production and R & D automobile clusters hosting Suzuki, Honda, Hero Moto Corp, Yahama and many other established players in automobile industry. The Japanese investor zone at Neemrana, 120 Kms from New Delhi on the New Delhi-Jaipur highway, housing leading automobile ancillaries mostly from Japan, is a great success story. Several multinational companies are headquartered in Gurugram, a district of the State of Haryana on the outskirts of New Delhi. The district is also among top five IT hubs in Asia Pacific. Let us see what the New Delhi- NCR zone has:
The Eco-friendly industrial hub at Ranikhera, coming up by 2021, in the western side of New Delhi, with 10-12 segmental clusters, will cater to specific needs of IT, ITeS (Information Technology-Enabled Services) industry, including R & D.
New Delhi has 2 dry ports – the Inland Container Depots at Tughlakabad and Patparganj where containers come via sea ports such as Nahva-sheva, Mundra & Pipava. Additionally, of the first two Dedicated Freight Corridors (DFCs) under construction by the Indian Railways, the Western DFC connecting New Delhi with the above mentioned and Mumbai sea ports, is expected to be operational by 2021.
Figure 2: Upcoming International Airport in Jewar, Greater Noida
New Delhi-NCR has more than 50% of its population in the age group 20-49; hence, there would be no dearth of labor.
The UP state which has 8 districts in NCR froze most of the labor laws except the basic ones to give the industries more hire & fire flexibility to recover from the Covid-19 blow. GoI is now considering options to push labor reforms to replace such temporary suspensions.
Governments of U P and Haryana, with substantial stakes in the NCR region, have been quite proactive in chalking out strategies for capturing investments coming out of China and the GoI's high level Empowered Group of Secretaries referred to above will also supervise opening-up challenge route for the state governments to compete for marquee investments and projects from abroad.
Yes, for companies wanting to move supply chains from China to other countries, India has be one of them, and New Delhi-NCR a forerunner.
Get The CEO Magazine to your Door Steps; Subscribe Now
