Decoded: Will global manufacturing gradually shift from China to India?

When India's Prime Minister Narendra Modi addressed the World Economic Forum last year, he delivered the iconic punch line “Make in India, Make for the World”, which according to reports indicatedIndia’s ambition to become and promote itself as a global manufacturing and export hub.

A recent Economic Times report said that India is actively pursuing the 'plus-one' strategy. Only India’s labour force and domestic market are comparable to those of China. India is seen as a natural partner for Western nations, with the Indian government working towards making it easier for businesses to set up their manufacturing units in India.

In an exclusive interview with Mark Mobius, the founder of the Mobius Capital Partners, in November 2022, The Print reported that there is a growing trend of manufacturing shifting from China to India, despite New Delhi’s growing trade deficit with Beijing.

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The report went on to say that China’s strict Covid-19 lockdowns and the continuing ‘technological war’ with the US has motivated manufacturers, especially those in the technological hardware industry, to shift their manufacturing units to India.

What does manufacturing in India offer to the world?

India’s manufacturing potential, according to a Times of India report, stems from benefits like a sizable-trainable workforce, digital infrastructure facilitating efficient operations, investments in logistics infrastructure, proximity to different countries for supply chain diversification, a strategic location for accessing emerging markets, and cost advantages in low-cost and economical manufacturing, supported by a strong legal system and patent protection.

According to a CNBC report, US aircraft manufacturer, Boeing is looking to begin production in India. Boeing’s $34 billion deal with Air India for the supply of aircraft will be seen as a test for both businesses and the south Asian economic powerhouse, which is making every effort to draw foreign firms in an effort to establish itself as a major manufacturing base as Western businesses strive to reduce their reliance on China, the de facto global factory.

“As a company with over seven decades of presence in India, Boeing continues to support the development of indigenous aerospace and defense capabilities in the country,” CNBC quoted Dave Schulte, the commercial airplanes managing regional director of marketing for Boeing’s Asia Pacific and India region, as saying.

On the other hand, as per a Forbes report, Apple has been striving to diversify production away from China while it looks for a backup amidst the US-China trade war. Apple started manufacturing older models of phones in 2017. Now, their flagship iPhone 14 models are also manufactured in India.

Forbes quoted Upasana Joshi, the principal analyst for mobile devices research at International Data Corporation (IDC) as saying, "More than 70 per cent iPhones in India were locally manufactured in 2022, up from less than 40 per cent in 2020. While it will be immensely challenging for Apple to move its entire value chain from China to India, we can say that gradually India is getting ready to enter the critical parts of value chain related to the electronics manufacturing."

What are the challenges of manufacturing in India?

As identified by another Forbes report, the main issues when manufacturing in India are high tariffs, outdated labour regulations, fragile policy frameworks, regulatory uncertainty, and unfavorable growth conditions in a foreign country. The acquisition of land with clear titles, the high amount of import duties, and a price-sensitive market are other such challenges identified.

A recent Times of India report stated that unskilled labour and inadequate infrastructure are the key factors that businesses consider before setting up its manufacturing hubs. According to businesses, labour shortage is raising its ugly head in India’s manufacturing centres. This is because, in contrast to China, many workers are hesitant to move a great distance in search of employment. Additionally, obtaining land and necessary permits in India can take a significant amount of time. Issuing visas for foreign engineers, managers, and technicians can also take time.

Even if businesses are able to successfully set up their manufacturing units in India, cracking the Indian market becomes another challenge. For instance, Ford and Hyundai Motors, both businesses established operations in India at the same time. While Ford sold vehicles made for the western market, Hyundai concentrated on introducing vehicles that catered to the wants and demands of local customers. Today, Hyundai is the second-largest automaker in India in terms of market share, but Ford left the country on a bitter note decades later.

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