India in touch with 250-plus US companies to shift manufacturing under ‘China Plus One’ policy.
NEW DELHI: India has opened conversations with over 250 American companies that are exploring a shift in manufacturing operations from China — an effort that has received fresh impetus after the meeting between Prime Minister Narendra Modi and US President Donald Trump.
ET has reliably gathered that the Prime Minister’s Office (PMO) set the ball rolling on this effort through a letter to Niti Aayog on June 28, the same day that Modi and Trump met in Osaka.
“Several global companies engaged in large-scale manufacturing, especially in China, are seriously considering an alternative location, owing to political, economic and strategic reasons. The ongoing US-China trade war has further accelerated the pace of efforts at relocation or towards finding a diverse location,” stated the letter, which calls for setting up an inter-ministerial panel to look at ways to harness India’s potential to become a low-cost manufacturing hub for high-end IT products.
The talks with American companies are in initial stages and delicately poised amid growing Sino-US tensions, ET has learnt. Auto components, electrical and electronics, consumer durables, processed foods and mobile accessories could be among the sectors in India that could see investments as companies relocate from China.
The inter-ministerial panel is expected to identify ‘disability’ vis-à-vis other potential investment destinations such as Vietnam — which offer huge export incentives — and look at opportunities arising out of the Sino-US trade dispute.
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Further, the panel will consider possible fiscal and non-fiscal interventions that will be compliant with India’s obligations at the World Trade Organization (WTO).
Electronics constitute the biggest chunk of global exports and the government wants to capture a large share of this pie. According to the National Policy on Electronics, India aims to export $110 billion worth of mobile phones out of the country’s total estimated production of $190 billion by 2025. Smartphones and electronics are the single largest item of import for six out of 10 largest importing countries.
The letter also asked Invest India, the country’s investment promotion wing, to extend all necessary support to the policy-making initiative.
Invest India has been trying to facilitate investments from Japanese, South Korean and Taiwanese businesses willing to shift some of their operations to India from China amid a power rivalry, said people familiar with the matter.
Japanese businesses have steadily increased their presence in India since 2014, and the momentum may pick up over the next few years aided by the deepening bilateral strategic partnership.
Simultaneously, South Korean businesses, including those involved in manufacturing, are keen to expand their footprint in India by shifting from Japan amid bilateral and geopolitical tensions, said experts.
Interestingly, businesses from Taiwan — which are present in huge numbers in mainland China — are also exploring the possibility of shifting some facilities to India and are seeking concessions, the people said. A senior Taiwanese official, who did not wish to be identified, told ET that Taiwan is seriously considering shifting some operations from mainland China to India due to favourable political and economic conditions.
Globally, many companies are following a strategy called ‘China Plus One’, which refers to efforts to diversify supply chains by setting up a production base in at least one other country besides China.
“Under this strategy, businesses started to shift to Vietnam and Thailand from mainland China as these two South-East Asian nations have attractive free-trade agreements (FTAs) for third-country exports. A case in example is Samsung, which started operating from Vietnam a few years ago and today contributes significantly to that country’s gross domestic product. But these markets in SE Asia are small, and India’s attraction is its huge market and growing middle class. This is India’s chance in history,” said one of the sources mentioned earlier.
Source: The Economic Times