Foreign companies are looking to shift their production base out of China and move it to India mainly because India is the world’s fifth-largest economy with an abundant of the labour force and offers the best alternative in terms of depth and size of the markets. India is a young and aspirational economy with a median age of 27 and around 900 million “working-age” population.
Approximately
one thousand companies are in discussions to set up their production base in
India. The Indian government is reportedly in the process of identifying and
developing 4.6 lakh hectares of land, including 1.1 lakh hectares of existing
land in industrial areas, and planning fiscal incentives in the form of
preferential tax rates, tax holidays, etc in order to attract foreign firms.
The main
reason why investors are moving out are, initially, China attracted foreign
investors with decentralized and favourable FDI policy that had a lot of
incentives with regard to land, utilities, infrastructure and logistics. Cheap
labour, large SEZs, favourable pricing of inputs, and an undervalued currency
facilitated and attracted foreign firms. However, these advantages have reached
a saturation point. In fact, foreign firms are now dealing with a higher cost
of production, higher wages, stricter environmental norms etc. Many foreign
firms have consequently moved their production bases to Southeast Asian
countries.
The
situation for foreign firms in China has become more unfavourable in the last
few years. First, the US-China tariff wars happened, which created uncertainty
vis-a-vis trade and investment in China. Leading MNCs whose production
facilities in China were part of their global value chain became suspicious
about business viability and expansion there. The latest reason to now worry
foreign firms is the origin of the coronavirus outbreak and the lack of
transparency in handling the pandemic — leading to a lack of trust of the major
economies when it comes to China. The coronavirus outbreak in China disrupted
the supply chain of foreign firms, and it is also going to be the point of
contention between China and the rest of the world.
In the past,
China used its huge labour force in manufacturing by attracting FDI — it’s time
for India to do the same, particularly when foreign firms are looking for an
alternative manufacturing base. According to a UNDP report, India will have a
working-age population of 1.14 billion, with rising urbanization and a
populating middle-class by 2025, creating a huge domestic market. India is also
a resource-rich country. Therefore, India has its stage set to attract both
market-seeking and resource-seeking FDI.
To know more about prospects of starting a business in the Indian market, get in touch with us on –
Website: https://www.makinindia.in/
Email ID: info@makinindia.in.
Call us on: +91 8828461868
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