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Editorial: The Next Manufacturing Hub

Port Wings, 3 June 2020:

With the global reliance on Chinese manufacturing bases exposed in light of the global pandemic, many countries are now looking at alternate manufacturing sites to increase their supply chains. Given India’s minimal labour costs, slowly reducing corporate taxes and relaxed bureaucratic red tape, India can poise itself to become the next manufacturing hub.

Prime Minister Narendra Modi said that India turned the Coronavirus crisis into an opportunity. “We did not manufacture personal protective equipment, made N-95 masks for namesake when the disease first broke out here. Today, we manufacture two lakh PPEs in a day and two lakh N-95 masks in a day. This is because we turned the challenge into an opportunity,” he said in his address to the nation. He also said that it is the responsibility of every person in the country to make 21st century India’s century.

India needs to improve contract enforcement mechanism and upgrade infrastructure to attract companies looking to move away from China and seeking other investment destinations, feel experts.

The outbreak of COVID-19 has created unique opportunities for India, and the country should do its best to attract companies and investments as it would help in generating jobs, creating wealth and promoting ‘Make in India’, they said.

According to estimates of the UN Statistics Division, China accounted for 28 percent of global manufacturing output in 2018. Yet, the Coronavirus pandemic is beginning to change this in many ways. The supply shock created by a Chinese shutdown has prompted global firms to look for new manufacturing centres as a part of a risk hedging strategy for the future. Several industries have realised the drawbacks of being excessively dependent on manufacturing on a single country and are looking to expand the geographic spread of their facilities.

This presents a moment of opportunity for India which can reap rich dividends by creating a manufacturing-friendly environment and offering lucrative deals to global players for setting up units in India. Reports have indicated that many companies have already initiated talks with Indian authorities seeking to pursue production plans in this country in sectors such as electronics, medical devices and textiles, among others. India needs to capitalize on this opportunity and present itself as a viable alternative manufacturing destination.

However, in order to roll out the red carpet to global firms and present a credible alternative to China as a manufacturing hub, the Indian government will have to overhaul the state power utilities, put in place a mechanism for enforcing commercial contracts by bringing in specialised commercial courts and establish a consultative mechanism for commercial/foreign exchange related laws.

The disruption due to restriction of import has given an opportunity to local manufacturing units to fulfill the domestic need which earlier was catered with imported supply. The entities that are closing operations in China and are wanting to shift to India will find it easier to start business, thanks to the initiative taken by the Modi government to improve ease of doing business.

The private sector can play a vital role in helping the government create an enabling ecosystem to attract investments from abroad. In the recent past, the tax regime in India has been quite dynamic and the government has introduced a range of tax sops in order to attract investment, especially in the manufacturing sector.

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