Context

A golden opportunity

• With the US-China trade war in its second year now, old business arrangements are under severe stress.

• American companies that have long used Chinese factories to crank out low-cost products for various markets find themselves under US policy pressure to either pull out of China, or to shift key operations elsewhere.

• US President Donald Trump might just raise tariffs on Chinese imports to 30% this October, enough to disrupt the cost calculations of the most resilient firms that make products in China.

• This presents India an opportunity to plug a vacuum, and the government has moved in to seize it.

India’s footsteps

• With new FDI norms, India would open the domestic field of contract manufacturing to 100% foreign ownership of ventures.

• It is seen as a move explicitly designed to attract global players currently in search of low-cost locations for production units.

• Coupled with the easing of local-sourcing conditions imposed on foreign single-brand retailers in India, the reform serves as a big welcome board to US firms.

• It is one thing to issue an invitation, however, and quite another to win decisions in India’s favour.

Plugging loopholes

• Our country does not have much of a reputation for manufacturing efficiency.

• The sector has languished, as a proportion of the overall economic pie, even as services have leapt ahead.

• While it is true that new investors could transform the way products are put together by bringing in practices perfected elsewhere, analysts have long expressed concerns about low productivity here.

• Excessive red tape, which tends to raise corruption levels, has been another deterrent to foreign investment.

• However the EODB in India has risen in recent years though, as measured by the World Bank, and inflows from overseas businesses have been rising apace.

• In other words, the problems of the past need not persist in the future.

Replacing China

• For India to try replacing China as the world’s factory, a prospect that holds out the dream of job generation by the million, the country would need to enhance its overall competitiveness as a manufacturer.

• This is primarily about allowing companies to meet high quality standards at the lowest possible cost.

• Broadly, the Chinese success formula so far has involved the large-scale use—and even diversion—of state resources to subsidize mass production, not to speak of labour conditions that some consider repressive.

Way Forward

• In a democracy like ours, due caution should be exercised before attempting to emulate such ideas.

• Even on keeping export price tags low, China is not a good role model.

• Indeed, integration with global supply chains would require the Indian rupee’s value to be export-oriented, which could mean letting it slide when appropriate, but policymakers must resist currency manipulation.

• India must make its market and democratic forces work in tandem as it sets about creating conditions that would spur efficiency and turn “Make in India” into a routine sight across the world.