India’s latest set of incentives to entice businesses moving away from China seem to be working, with companies from Samsung Electronics Co to Apple Inc’s assembly partners showing interest in investing in the South Asian nation.
Indian Prime Minister Narendra Modi’s government in March announced incentives that make niche firms — electronics manufacturers — eligible for a payment of 4 to 6 percent of their incremental sales over the next five years.
The result: About two dozen companies pledged US$1.5 billion of investments to set up mobile-phone factories in the country.
Besides Samsung, those that have shown interest are Taiwan’s Hon Hai Precision Industry Co (鴻海精密) — known internationally as Foxconn Technology Group (富士康科技集團) — Wistron Corp (緯創) and Pegatron Corp (和碩).
India has also extended similar incentives to pharmaceutical businesses, and plans to cover more sectors, which might include automobiles, textiles and food processing under the program.
While companies have been actively looking to diversify supply chains amid US-China trade tensions and the COVID-19 pandemic, it has not yet translated into big gains for India, despite the nation making it cheaper for businesses to open shop.
Vietnam remains the most favored destination, followed by Cambodia, Myanmar, Bangladesh and Thailand, according to a recent survey by Standard Chartered PLC.
“There is a reasonable chance for India to gain in terms of incremental investment of supply chains within the country over the medium term,” said Kaushik Das, chief India economist at Deutsche Bank AG in Mumbai. “These programs are aimed at increasing India’s manufacturing share in the gross domestic product.”
Samsung plans to make US$40 billion worth of smartphones in India and might shift a major part of its production from Vietnam and other countries, the Economic Times reported, citing people it did not identify. Samsung did not respond to queries from the newspaper.
The incentives would help bring an additional investment of US$55 billion over five years, adding 0.5 percent to India’s economic output, analysts led by Neelkanth Mishra at Credit Suisse Group AG said.
This could shift an additional 10 percent of global smartphone production to India in five years, most of it from China, they wrote in a report on Monday last week.
That complements Modi’s goal to grow the share of manufacturing in the economy to 25 percent from about 15 percent as part of his “Make in India” program. His government has already lowered taxes on companies to among the lowest in Asia, seeking to attract new investments in an economy headed for its first contraction in more than four decades this year.
The latest output-linked incentive plan is a “big win for Make in India,” BofA Securities Inc analyst Amish Shah said in a report to clients.
Shah said he sees gains for industrials, cement, pharmaceuticals, metals and logistics, with long-term indirect benefits across many sectors.
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