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Impossible for India to Replace China as the World’s Supply Chain Factory

India is keen to make up for the space vacated by China as global companies relocate due to coronavirus. However, it seems impossible for India to replace China as the world’s supply chain factory.

India Strives to Become World Supply Chain factory

Several states in India are making aggressive strategies to woo investments as companies look forward to exit China. While Japan has allocated USD 2.2 billion to shift factories, European Union members have cut supply ties with China. 

India has prioritized efforts to attract supply chains, both at central and state government levels. The country reached out to more than 1000 American companies to offer incentives to move out of China. An official confirmed that India is luring U.S. companies involved in healthcare products and devices and are in talks with Medtronic Plc and Abbott Laboratories. Both these firms have their presence in Mumbai and are already working with hospitals. Besides, India’s trade ministry has asked U.S. companies on changes needed to make the country’s tax and labour laws more favourable to them. Moreover, it is developing a land pool of 460,000 hectares is destined to run into global headwinds.

Why it is Difficult for India to Replace China?

Ajay Sahai, DG and CEO of the Federation of Indian Exporters said that apart from ensuring land and water, the Indian government must guarantee no tax amendments. India’s GDP grew by 3.1% in the last quarter of this fiscal, which includes only one week of lockdown. Global companies may consider Bangladesh and Vietnam over India. This would be a rough fit in terms of replacing China’s manufacturing facilities. However, the companies will expect the nations to ramp up to at least equal Chinese capacity quickly.

India has to go up in global competitiveness to reduce costs and provide skilled workers to attract the shifting companies. Infrastructure, ease of business, and tariff regimes also affect attracting business to the country. Also, for the majority of companies, the move might be unfeasible as no other country has this diverse supply network. Moreover, the market of the second-largest economy in the world may have been the reason for setting up production plants for several companies in the first place.  

Abhijeet Banerjee’s Opinion

Nobel laureate Abhijit Banerjee said that companies shifting to India from China may not be in the best interest of the country. He explained that if China depreciates its currency then the people will continue to buy their products.

In all, several factors will affect the relocation of global companies from China to India.

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