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.
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.
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.