A UBS report last month said initial signs showed that India is the top destination for companies moving out of China.Multinational companies looking to diversify their supply chains away from China due to trade protectionist measures and rising risks because of coronavirus could look at India as an alternative.
The Swiss bank estimates that India’s foreign direct investment (FDI) pipeline has doubled to $175 billion versus $87 billion last year from sectors like construction, electronics, infrastructure, textiles, food processing and pharma.
“Given India’s competitive advantage in terms of land and labour availability, exports has always been a big hope historically but it is now seeing a turn as global manufacturers long settled in China are looking to diversify their manufacturing base.India has scale advantage and key success factors locally are also improving,” UBA said in a report specially examining the factory relocation theme.
The spread of coronavirus, which originated in China, could also hasten this move by multinationals. Bankers said India can take advantage if the authorities move fast.
If India can make like-for-like replacement possibilities make land and electricity available and all clearances are in place to (help companies) de-risk on a permanent basis (it is an opportunity). The government has helped with this 15% taxation which together with this narrative if we now get to the administrative side to offer a plug and play model with our advantages it is an opportunity for us. But we have to be faster and better than other competing countries,” said Hitendra Dave, head global banking and markets at HSBC India.
UBS surveyed 450 senior executives between December and January and found that, 76% of the respondents have either shifted their supply chain or are planning to shift in response to protectionist policies. Overall, a high number of respondents are looking to diversify, suggesting a manufacturing shift from China is more structural and longer term in nature. “India continues to be among the top destinations in Asia for manufacturing shift. Trade data confirms market share gains for India in exports to the US, for tariff-imposed products,” UBS said. Researchers analysed earnings transcripts of 44 global companies to spot nuances in language that signify a potential relocation of manufacturing to India. There are increased references to ‘India’ and ‘trade war’.
Bankers said the immediate benefits are going to come in the telecom industry. “Already a couple of big majors, including the Chinese manufacturers, are setting up plants in India. If a combination of telecom, electrical, and electronics come in over the next 18-24 months, it is only a matter of time before semiconductor manufacturing follows. You would have some big companies working with the government to set up manufacturing bases in India and make the country a global supplier base,” said K Balasubramanian, head corporate banking group at Citibank India.
UBS said there has already been an increase in manufacturing of electronic equipment to Rs 4.58 lakh crore in fiscal 2019 from Rs 1.90 lakh crore in fiscal 2015. Out of the 1 billion mobile handset target, 600 million units will be for exports valued at about Rs 7 lakh crore, UBS said.
