Indian Government Struggles to Support Businesses After Lifting Restrictions
Challenges Include Unskilled Labor, Infrastructure, and Excessive Regulations
As global manufacturers adopt the 'China+1' strategy by adding production bases outside of China, India is rapidly emerging as the 'world's factory,' the Wall Street Journal (WSJ) reported on the 9th (local time).
In an article titled 'The World's Factory: China Finally Gets a Rival,' WSJ introduced a massive industrial complex in Sriperumbudur, Tamil Nadu, southern India. This site serves as a production base for global IT companies such as Apple and Samsung Electronics, as well as global automakers that have already entered or are preparing to enter the market. Taiwan's Foxconn, Apple's largest partner, is producing iPhones at the Sriperumbudur plant, and Samsung Electronics also operates a white goods manufacturing plant there.
Recently, manufacturers from various fields beyond home appliances and automobiles, including solar panels, wind turbines, toys, and shoes, have been flocking to the area. Vestas, the world's number one wind turbine manufacturer from Denmark, recently built two new factories in Sriperumbudur, and its parts suppliers have joined the move to India. Vestas is expanding its investment, anticipating India to grow into the world's second-largest wind turbine market.
Charles McCall, head of Vestas' India plant, said, "After experiencing severe production disruptions due to COVID-19 lockdowns, we are diversifying production bases outside China to spread risk," adding, "The strategy of putting all eggs in one basket in the global supply chain is no longer valid."
Benefiting from this de-China trend, India's electronics exports have tripled since 2018, and the global smartphone production share is expected to increase from 9% in 2016 to 19% this year.
There are three main reasons companies are reducing their dependence on China. Since joining the World Trade Organization (WTO) in 2001 and entering the global supply chain, China rapidly grew into the 'world's factory' with its young population and cheap labor. However, recent rises in labor costs, pressure from the Chinese government for technology transfer, and various management environment risks due to the US-China strategic competition have surfaced. Above all, China's COVID-19 lockdown policies severely disrupted the global supply chain, delivering a direct blow.
While companies are also looking to Mexico, Vietnam, Thailand, Malaysia, and other countries besides India, India holds an overwhelming advantage in terms of economic power and labor population. India has surpassed the former colonial ruler, the United Kingdom, to become the world's fifth-largest economy. This year, it is expected to overtake China, the world's most populous country, in population as well.
Seeing the opportunity, the Indian government has increased pro-business policies such as subsidies and tax refunds, but deep-rooted limitations like trade barriers still exist. Most of the labor force is low-skilled and unskilled, infrastructure such as roads and railways is poor, and excessive regulations like high tariffs make it difficult for foreign companies to enter the market. Additionally, the relatively small share of manufacturing in India's overall economy is also cited as a limitation. According to the World Bank, India's manufacturing export share was estimated to be one-tenth that of China as of the end of 2021.
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