Country held back by weak infrastructure, trade mechanism

By Li Xuanmin Source:Global Times Published: 2017/7/12 23:23:39

Indian laborers work on a roadside board on June 2, 2017 in Kolkata, India. Photo: IC

The chances of India emerging as the next "world factory" after China in the coming decade are slim, due to its backward infrastructure, globally uncompetitive trade mechanism and the changing technological environment, experts said on Wednesday.

The comments came after reports that an increasing number of Chinese mechanical and electronic enterprises are setting up factories in India, prompting questions about whether India could overtake China as the next workshop of the world in the near future.

Chinese household appliance maker Midea announced in July that it will invest 8 billion rupees ($123.5 million) to build a manufacturing facility in Pune, India. The unit is expected to be operational by the end of 2018 and will employ 500 people, according to a statement on the company's website.

Taiwan-based contract manufacturer Foxconn is also stepping up expansion of its manufacturing facilities in India, media reports said. The electronics maker has signed an agreement worth $5 billion to expand its research and development center in India.

In addition, domestic phone makers including Xiaomi, Vivo, Oppo and Lenovo have also joined the trend, establishing manufacturing bases in India in recent months.

However, "it will still be difficult for India to build itself into a world factory in 10 years. A more realistic vision for India would be to become an 'India factory' in which products are manufactured and sold locally," said Wu Shunhuang, CEO of Hong Kong-based space-sharing firm Inworks, which has a subsidy in New Delhi, capital of India.

"The logic behind domestic firms' move to India is very simple: to cash in on India's huge potential market and take advantage of its cheap labor resources," Wu told the Global Times on Wednesday.

For example, India is home to the world's second-largest population with 1.33 billion people, only 17 percent of whom currently own smartphones, indicating a huge untapped market.

Another factor is "India's latest tax reform, known as the Goods and Services Tax (GST) regime," said Liu Xiaoxue, an associate research fellow at the National Institute of International Strategy under the Chinese Academy of Social Sciences.

Under the GST system, imported electronic products will be subject to a 10 percent tariff, which is forcing Chinese companies to adopt the strategy of localized production in India, Liu told the Global Times on Wednesday.

Long way to go

India's low labor costs also appeal to foreign investors, Wu said, "but becoming a world factory needs more than that; it also requires advanced infrastructure and a convenient export process."

There is often social pressure on women not to go to work in India, which diminishes the country's workforce, experts pointed out. From 2006 to 2016, the participation of Indian women in the workforce fell 10 percent, according to a report released by joint industry chamber Assocham-Thought Arbitrage Research.

Another pressing issue for India is whether the goods produced in the country can be delivered to foreign destinations as fast as from its competitors in Southeast Asia such as Vietnam and Malaysia.

India's infrastructure deficit, including roads, highways, railways and ports, is currently holding back the country's GDP by about 5 percent and an improvement would boost export competitiveness, according to a report published by S&P Global Ratings.

The country's complicated tariff system and international settlement procedures are also not globally competitive, even compared with Vietnam, Wu said. "Will foreign manufacturers who have become used to China's efficient foreign trade mechanism be able to accept a new and slow network in India?" Wu asked.

Some have argued that on its way to becoming a world factory, India could follow China's model by first building infrastructure and then opening up and improving the business environment for foreign investors. But experts pointed out that there are differences in the current era.

"Compared with two decades ago, new technologies are now growing and changing fast. So the time left for India to make up for its areas of deficit and catch up with new technology is limited," Wu noted. 

Liu noted that the good news is that China's transitioning economy offers great opportunities for India to move into low-cost manufacturing.

Newspaper headline: India won’t become ‘world factory’ soon: experts

Posted in: ECONOMY

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