SS:
This article discusses the difficult challenge India will have in attracting manufacturing from China, despite public perceptions. It notes how while back in April and May, news of 1000 US allegedly leaving China for India amid the pandemic was paraded throughout much of India, that hype has not lived to expectations, with very little manufacturing actually migrating to India, with a multitude of challenges weighing down on India.
The author discusses problems with Modi's 3 D's claim- that democracy, demography, and demand would bring foreign MNCs to manufacture in India, noting that:
- Not much manufacturing actually left China in the first place, contrary to strategist expectations
- To the extent any manufacturing did leave China, it primarily did not go to India
- A multitude of certain non-economic and governance-related factors, whether from cumbersome regulations, red tape, drawn-out permit approvals process, land acquisition challenges, weak infrastructure, greater logistical costs, and political instability are huge problems India faces
- Economic challenges, like wild currency volatility, which deters foreign MNC's, and a weak domestic demand base that India also faces
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While anecdotes of companies setting up in India are often hyped up, they do not often live up to the hype. For example, take Foxconn, which manufactures for Apple, had
that India would have 12 plants and 1 million Indian workers by this year, as well as a
to create 50000 jobs in Maharashtra back in 2015. Both of these did not live up to their hype. In fact, Apple continues to
on China over these past 5 years, adding 34 new supplier bases in China between just 2017 and 2019. While in India, Foxconn is now where even close to having 1 million workers in India, and
their $5 billion plant they had promised the Maharastra gov't back in 2015 early this year. They came back with a far more paltry $1-billion investment to expand an existing plant and create 6000 jobs, which was hyped up by Indian media a few months ago with great fanfare (for context, Foxconn still employs somewhere around 1.3 million workers in China, despite spending a decade of trying to diversify away from it); we will have to see if even this investment promise lives up it hype. While Foxconn is no stranger to
, this only is a microcosm of the
India has had in attracting manufacturing.
India does have great untapped market and economic potential. Through more effective political and economic reforms, improved governance, and a dramatic upgrade of its infrastructure, India may have a shot at realistically competing with China economically. After all, India is really the only other place on earth that might have the potential to match China in terms of supply chain efficiency and economies of scale in manufacturing, given the country's demographics and potential capability to achieve scale. But until such changes are made, and I have not been encouraged at all by weak progress by Modi these past 6 years, India will remain just a story of "potential".
