Thursday 5 August 2021
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India wooing more than 1,000 companies fleeing China

When the US-China trade war started two years ago, many companies fled to Vietnam; this is India's opportunity to make up for the time lost

India is luring US businesses to relocate from China as President Donald Trump’s administration steps up efforts to blame Beijing for its role in the coronavirus pandemic. Among the major companies that India is attracting, there is medical devices giant Abbott Laboratories, which has Indian collaborators in the local pharmaceutical industry already. Medtronic Plc is another company with which India has initiated talks.

The Narendra Modi government reached out to more than 1,000 companies in the US in April. According to officials who asked not to be identified, citing rules on opening up to the media, India’s overseas missions are offering incentives for manufacturers seeking to move out of China.

India has prioritised medical equipment suppliers, food processing units, textiles, leather and auto part makers among more than 550 products covered in the discussions, said the officials.

Also read: Modi encourages chief ministers to woo cos fleeing China

With Trump accusing China of unleashing the COVID-19 pandemic on the world, killing more than a quarter-million people worldwide, global trade ties are set to go haywire. Companies and governments are moving resources out of the world’s second-largest economy to diversify supply chains.

has set aside $2.2 billion to help shift factories from its neighbour. European Union members have decided to reduce their dependence on Chinese suppliers.

India expects to win over US companies dealing in healthcare products and devices. It is talking to Medtronic Plc and Abbott Laboratories on relocating their units to the country, an official said. Medtronic spokesman Ben Petok and Abbott spokeswoman Darcy Ross didn’t immediately respond to emails seeking comment.

Both Medtronic and Abbott have a presence in India, which may make it easier for them to move their China supply chains to the country, according to an official. They’re based out of financial center and already work with large Indian hospital groups.

Also read: Gujarat, UP vie to attract Japanese companies fleeing China

Officials have told companies that India is more economical in terms of securing and affordable skilled labour than if they moved back to the US or Japan even if the overall costs in India are still higher than China. They have also offered the companies an assurance that India will consider specific requests on changes to labour laws, which have proved a major stumbling block for companies.

The interlocutors have told the firms fleeing China that the Indian government is considering a request from e- companies to postpone a tax on digital transactions introduced in this year’s .

India is trying to regain lost ground after many companies pres=ferred ASEAN options like Vietnam to India as an alternative destination when the US-China started in 2018. The Narendra Modi government has tried to shore up US investments and improve ties through a massive corporate tax cut, two massive public rallies with Trump in Houston and India, and a $3 billion defence deal.

Secretary of State Michael Pompeo had said last month that the US had been working with India, , Japan, New Zealand, South Korea and Vietnam on how to “restructure these supply chains to prevent something like this from ever happening again.” The administration was “turbocharging” an initiative to remove global supply chains from China.

An official said the US was pushing for an “Economic Prosperity Network” of trusted partners.

China situation an opportunity for India

Derek Grossman, researcher at the Washington-based RAND Corporation who held positions in the US Intelligence Community for more than a decade, said, “My read is that the network — if it pans out — will look to India and Vietnam to replace China in the global supply chain network.”

“This would be a rough fit in terms of replacing China’s immense manufacturing capabilities, but perhaps the US has high hopes that India and Vietnam can quickly ramp up to at least equal Chinese capacity,” Grossman said.

India had partially lifted a ban on the export of hydroxychloroquine and paracetamol in April following a request from Trump that a journalist had twisted to make it sound like a threat of retribution if the ban stayed. It approved Rs 130 billion ($ 1.7 billion) worth of investments to make more bulk drugs and medical devices and boost local manufacturing of drug intermediates and active pharmaceutical ingredients to cut dependence on imports from China.

For the prime minister, a steep rise in foreign investment will help shore up an economy that an eight-week nationwide lockdown to control the Covid-19 outbreak has hit badly. This will help Modi make up ground hitting a target to grow its manufacturing sector to 25% of gross domestic product by 2022 from 15%.

The need to create is now even more urgent after the pandemic left 122 million people jobless, forcing the country to shut down all major cities.

An FDI boom would present the country with a chance to finally push through long-stalled reforms on land, labour and taxes that have hindered investment for years.

Prime Minister Modi’s second term has been marred by nationwide protests and slow growth despite the BJP scoring a election victory a year ago with a greater margin than in 2014.

“There are opportunities for India to try to gain a place in global supply chains, but this will require serious investments in infrastructure and governance,” said Paul Staniland, an associate professor at the University of Chicago who writes about India’s politics and foreign policy. “India faces tough competition from elsewhere in South and Southeast Asia.”

The trade ministry has sought detailed feedback from US companies on changes needed to make the country’s tax and labour laws more favourable to companies, said one of the officials. PM Modi’s federal government is working with states to ensure long term solutions, the official added, including developing land banks to ensure a quick start for units.

What India needs to change

Ajay Sahai, director-general and chief executive officer of the Federation of Indian Exporters, said, “India is a bigger market than Vietnam or Cambodia so it should be a bigger draw for investors looking to move operations out of China.”

“However, apart from ensuring land, water and sewerage, the most important change India needs to make is to give a clear guarantee that the government will not introduce retrospective tax amendments,” Sahai added.

States like Gujarat and Maharashtra have ensured that supply chains for foreign manufacturers remained functional through India’s national virus lockdown. Tamil Nadu in the south and Uttar Pradesh in the north have offered concessions for those planning to move.

“There’s abundant capital in the US that’s looking for geographies outside, and we can see India responding,” said Mukesh Aghi, president of the US-India Strategic and Partnership Forum, a Washington-based group that advocates for policies that further business ties between the countries. “Companies realise that while large supply chains in China may have been economical, there’s no point in keeping all your eggs in one basket.”

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