Employees test mobile phones on an assembly line in the mobile phone plant of Rising Stars Mobile India Pvt., a unit of Foxconn Technology Co., in Tamil Nadu | Karen Dias/Bloomberg
Representational image | Employees test mobile phones on an assembly line in the mobile phone plant of Rising Stars Mobile India Pvt., a unit of Foxconn Technology Co., in Tamil Nadu | Bloomberg
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New Delhi: Many multinational companies (MNCs) are exploring the option of ‘making’ in India as they look to diversify and shift manufacturing ecosystem partially out of China amid a massive disruption in supply chains due to Covid-19.

According to consultants and analysts ThePrint spoke to, several MNCs are reaching out to government agencies, their own respective embassies in India and consultants as they look to conduct feasibility studies to shift some of their operations into India.

Apple’s manufacturing partner Winstron Corporation has reportedly evinced interest in moving to India. iPhone assembler Pegatron is also considering India as one of the options. South Korean firms like Posco and Hyundai Steel are also looking to set up operations in India, according to the South Korean consulate.

India has become an attractive option for these firms after a cut in corporate tax rates last year to as low as 15 per cent for new manufacturing firms. Further, the large domestic market in India and the relatively low labour costs are another advantage, the consultants and analysts said.

However, the constantly changing policies and the uncertainties are proving a source of concern and hesitation for the investors, they added.

Firms are looking to reduce their geographical concentration in China and explore other markets and jurisdictions. Other than India, firms are also looking at Vietnam, Malaysia, Philippines and Indonesia as alternative options.


Also read: CII wants Modi govt to add more sectors to exempted list, remove criminal charge threat

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Why the move to India

Sudhir Kapadia, national leader-tax at EY said there have been queries from many MNCs across jurisdictions like the US, Europe, South Korea and Japan who are keen to explore the Indian option.

“Most MNCs would not like to put everything under one geography given this kind of disruption. The focus while creating new supply chains and reorganising existing supply chains is de-risking and diversification,” Kapadia said.

He added that some factors give India an edge. “India now has a very attractive direct tax regime with tax rates as low as 15 per cent for new manufacturing companies. Coupled with the state level incentives, removal of the dividend distribution tax and the huge domestic market, India has become an attractive option,” Kapadia said.

Another tax consultant with one of the consulting firms, who didn’t wish to be identified, said the interest has been evinced from firms in the electronics space – white goods, smartphones and computer accessories, and the health sector including pharmaceuticals.

However, the complex tax and regulatory regime is a hurdle, he said. “There is no single window clearance for practical purposes. You have to reach out to multiple agencies to get compliances done,” he added.


Also read: How Indian factories have begun to tip-toe back to work after lockdown was lifted partially


What the government has said

Krishnamurthy Subramanian, Chief Economic Advisor in the finance ministry said last week that the Narendra Modi government had begun the process of reaching out to big firms to encourage them to shift their operations into India.

“After Covid-19, multinational enterprises will look at diversifying their global supply chains (away from China) and India will be an option,” he had said at ThePrint’s Off the Cuff.

Subramanian added that India has been in talks with the so-called nodal companies to shift their base to India. Typically, for instance, if a mobile manufacturer shifts its base to India, then the suppliers and other companies that are part of the value chain like distributors, also shift, he explained.

The process of reaching out to the firms had started prior to the pandemic in the aftermath of the US-China trade war, he added.

‘Thrust on Make in India’

Sandeep Jhunjhunwala, director, Nangia Andersen LLP said India is steadily emerging as a powerful alternative manufacturing destination for businesses planning to de-risk and diversify their supply chain operations.

“Recent production linked incentive schemes for large scale electronics manufacturing, including the modified electronics manufacturing clusters (EMC 2.0) scheme would also put an upward thrust on the ‘Make in India’ and ‘Assemble in India’ campaigns of the government,” he said.

“In addition to the policy initiatives of the central government targeting manufacturing companies exiting China, several state governments are also working towards creating windows in respective state industrial policies to woo investors,” he added.


Also read: IMF’s 1.9% growth projection for India in FY21 a reasonable estimate, says CEA Subramanian


 

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8 Comments Share Your Views

8 COMMENTS

  1. Quality and skill level of Indian labor is not attractive enough .. also festival celebration does not square with manufacturing culture . MNC prefer Laos, Vietnam Indonesia in preference to India

  2. The heading should have been “Unreliable, opaque China’ and not Virus hit China. Secondly we need to throw away the concept of Life time employment and too many benefits for labor to encourage labor to up skill. Also offer incentive to employers to help labor to up skill. This is necessary as AI will kill many jobs. Ease of closing business should be a part of ease of doing business. This requires no future obligations or payments to labor. This may involve increasing current payments to labor.

  3. IF, (and this is very big IF) Manufacturing companies moved into India after COVID 19. They would move out equally quickly when they face the problems of water, power, education, health, rule of law, judicial corruption, expense, delays, roads, transportation, taxes procedure and amount,, toll, licenses, delays by the State in every thing, lack of disciplined, learning labour, and extortion by the employees of the Indian State for everything essential to running a business including not being closed down on some pretext or the other under India “law”.
    This apart from the demand that they purchase “Election Bonds” to keep Modi happy and smiling upon them!!!
    If India had a suitable environment for manufacturing, India would have already been a Manufacturing hub. Think about it. A
    India has no Governance. That is the real problem.

    • Perfectly correct.
      Tax is overjoyed issue. You pay tax only if there is a profit. To make profit you need to operate – import, transport, produce, sell. With our wasted governance and political-beauraucratic greed, poor law & order, poor contract enforcement and infrastructure there is little chance left for making a profit.
      Unless drastic and immediate changes in outdated systems, laws and mentality is not brought about, there is a little chance for this to happen.

  4. We should make the environment favourable for foreign manufacturers but more focus should be on indigenous industries and startups. With global production coming to a halt and supply chain disrupted, we should source more item from within the country and develop the supply chain within our country to decrease the overall cost of operations which will make our products cheaper in the world. Foreign companies will automatically be attracted seeing the advantage of operating in India. Major industries should be identified and be made completely self reliant so that in times of need we don’t have to depend on other countries.example -defence,healthcare,foodprocessing,etc. Focus should also be on mass manufacturing of renewable energy products and electric vehicles. More R&D should be done in these fields. We need to try to be completely self reliant on our energy needs. Space is also the future and it should not be ignored. Space tech should be developed and Pvt players should be involved. Compared to other countries,we have a lead in this field and should exploit it to the fullest to become a leader. Every field where we have a lead,be it IT or pharmacy,should be exploited now to make sure we dominant in these fields.

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