Will India overtake China by becoming world’s largest production centre?
Home to the world’s youngest population, India has a large number of skilled and semi-skilled workforce who are enabling the country to get regular supply of cheap labour and lower production costs while overall contributing to increasing competitiveness of businesses across the sectors
As relations between the US and China are fraying and the Indo-Pacific region is searing with tension on account of PLA’s activities, Western companies have begun their moves to find an alternative to China as the global manufacturing hub under their backup strategy known as “China Plus One.”
India is emerging as a prominent contender for this role. With its large labour force and sizable domestic market, India is positioning itself as the ideal “China-Plus-One” option, said The Wall Street Journal in its recent report.
Foreign manufacturers in India have “long churned out cars and appliances for the Indian market. They are now being joined by multinational corporations marking goods from solar panels and wind turbines to toys and footwear, all looking for an alternative to China,” the New York City-based international daily newspaper said in an article published on May 9.
The WSJ said China still towers over every other country in global manufacturing, a position it cemented when multinationals flooded in after it joined the World Trade Organization in 2001.
“But a growing list of factors has prompted companies to search for a backup. First, there were rising labour costs in China and pressure from the Chinese government to transfer technology to Chinese competitors. Then there were President Donald Trump’s tariffs on Chinese imports in 2018, Covid lockdowns from 2020 through last year, and now a push by Western governments to decouple their economies from China,” the US-based international newspaper said.
Morgan Stanley, the renowned multinational investment bank and financial services company, has predicted that India will drive a fifth of world expansion this decade, positioning the country as one of only three that can generate more than $400 billion in annual output growth.
Why India fits China-Plus-One bill
India has many factors that can help it overtake China or become a plus one for Western countries. Its manufactured exports were barely a tenth of China’s in 2021, but they exceeded emerging markets like Mexico and Vietnam, said a World Bank report.
“The biggest gains have been in electronics, where exports have tripled since 2018 to $23 billion in the year through March. India has gone from making 9% of the world’s smartphone handsets in 2016 to a projected 19% this year, according to Counterpoint Technology Market Research,” The Wall Street Journal said. While quoting figures from the RBI, the international daily said, “Foreign direct investment into India averaged $42 billion from 2020 to 2022, doubling in under a decade.”
India’s G-20 Presidency and its advantages
India’s middle path positioning has bolstered its image as a country with which every nation is interested in having a good relationship. “India is positioning itself, and using its presidency of the G-20 to do so, as a bridge between east and west, and north and south,” Bloomberg quoted Kenneth Juster, a former US Ambassador to India as saying.
The former US Ambassador to India added, “A lot of companies feel that given its size, given its young population, given its inevitable force in international affairs, India is a place where they should be.” Indeed, the G20 Presidency has offered India a much-needed opportunity to emerge as a perfect choice for manufacturing and assembling in the economic area. “The cooperation of G-20 nations can also provide new techniques and develop challenging strategies to meet the needs of even the most vulnerable nations,” Sudhir Hindwan, an expert on strategic affairs said in an article in a daily newspaper.
Impact of ‘Make in India’ initiative
In 2014, Prime Minister Narendra Modi unveiled the ‘Make in India’ initiative, in an effort to boost domestic manufacturing. Under this initiative, production-linked incentives to domestic industries to increase their manufacturing capacities have been provided. It is designed to boost production worth $500 billion in five years, the Ministry of Commerce and Industry said in a statement.
It has an impact on trade engagement with China over which India relied on heavily for everything from electronic goods, machinery and equipment to pharmaceutical and healthcare products, chemicals, automotive components, consumer goods, and plastic products.
According to the Ministry of Commerce and Industry in India, purchases from China declined by 19.5% during the first ten months of 2021, as per the final data. China’s share in India’s merchandise imports further declined to 13.79% in 2022-23 from 15.43% in 2021-22.
Advantages for India
Some of the main advantages India enjoy include a vast workforce and a demographic advantage. India has one of the world’s youngest populations; more than half of the population is under the age of 25, while more than 65% under the age of 35. This provides a consistent supply of labour at a low cost, ultimately contributing to lowering production costs and increasing competitiveness.
In addition to this, India is rapidly undertaking business reforms. Implementation of the Goods and Services Tax (GST), changes in FDI policy and other business-related reforms have improved the ease of doing business in India.
This apart, India has developed a vast network of international-standard infrastructure in terms of roads, railway lines, airports, container shipping ports and power generation units in the recent past. India has about 63.73 lakh km of road network, which is the second largest in the world.
Highways are being built at a speed of 38 km per day. While Indian railways is laying new lines at the rate of 5 km per day. During 2022-23, 2909 km long new rail lines were laid along with doubling and gauge conversion. As of March 31, 2022, the total length of the rail line stood at 68,043km, making it the world’s largest rail network. During 2021-22, 288.55 km of new lines were completed. Of the total length of the existing rail route, 52,000 km lines are electrified. More than 32,000 km were electrified in the past eight years.
There are 12 major ports and 217 non-major ports in India, while there are a total 31 international airports in the country. These developments undoubtedly show that India has enormous potential in defeating China and becoming a factory floor for the world
***The author is a Delhi-based journalist; views expressed are her own