Japan has earmarked ¥243.5 billion of its record economic support package to help manufacturers shift production out of China as the coronavirus pandemic disrupts supply chains between the major trading partners.
The extra budget, compiled to offset the devastating effects of the pandemic, includes ¥220 billion for companies shifting production back to Japan and ¥23.5 billion for those seeking to move production to other countries. With the current robust Indo Japanese relations and an unprecedented friendship between the heads of the two countries, Narendra Modi and Shinzo Abe, the opportunity is real and strikable.
The companies would like to move to countries with:
(i) Working environment almost as good as China;
(ii) Manufacturing costs which are similar as in China;
(iii) An attractive long-term investment climate in terms of Ease of Doing Business;
(iv) Sound institutional quality
(v) Transportation costs
(vi) Transaction costs
(vii) Emerging Market spectrum
(viii) Currency volatility
(ix) The market size (GDP).
(x) The skill quality, discipline, optimum output and employee behaviour
(xi) Other aspects of sustenance and profitability and quality of governance.
India has the manpower, but skill levels fall short and government rules are relatively restrictive.
The good part is that India has improved its ease of doing business rankings in the recent past, under Modi's initiative, second that all of these measures mentioned above are eminently feasible. The concern, however, is that unless India moves faster, others may have already seized the opportunity
India would do well to abandon its overconfidence that investors will come simply for its large population. India will have to be seen as a country with not only better ease of doing business but also having better rule of law enforcement, better justice dispensing system and with greater labour reforms. The current out break of pandemic will also impose need for better health care system with an effective management in place. Unless we go scouting and inviting, demonstrating better opportunity, sustainability and accomodation, it may not be possible to get success in getting more companies to India.
India now needs to intensify a strategic push to undertake a concerted, whole-of-government push to boost investment levels and create the conditions manufacturers need to thrive, from steady power supplies to efficient port operations and customs clearance. Moreover, there is a need to understand the specifics of these businesses. Factories have unique requirements depending on what they make. This needs a all-in-one agency to overcome barriers, cut time constraints and facilitate smooth shifting in of the incoming companies.
Ethiopia alone has opened nearly a dozen industrial parks in recent years and set up a world-class government agency to attract foreign investment. This has given it huge success.
The first set of companies leaving China started moving about two years ago, whereas, the second set of companies started moving out in mid-2019. The third major phase will start immediately as the Covid situation stabilises.
India has not yet been able to take major advantage of the opportunities of the first and second set of companies moving out of China.
The prevailing situation indicates that the existing indigenous industrial activity is unlikely to be able to increase the production, industrial expansion or job creation.
The rising rate of unemployment and the current state of the economy, hence, have only two solutions. One foreign investment and additional industrial establishment and the second solution is job creation and better labour reforms including a transformational quality improvement of skill development.
The existing administrative setup inspite of its best efforts has made a small dent and has been able to get a very small success in getting the companies shifting out of China to India.
The coming few months are the last opportunity to get a larger number of the third and last set of companies moving out of China to India.
An effective option to get results is to set up an "Empowered Taskforce of Professionals" under the direct watch of PM Modi, with a clear mandate, responsibility, authority and resources to ensure that we are able to create the desired policy framework, incentives, homebound clearances, tax breaks and all essential provisions to ensure success and profitability of the incoming companies to a degree that all the emerging and new companies from US, EU and other regions look at India as the best option.
To construct a world class environment for foreign manufacturing companies, we need a greater integrity and honesty of purpose. A DNA change is not so quick. Yet, we can probably start on war footing, creating an Appex body out of people with proven record, people like Ratan Tata could Narayan Murthy, Azim Premji, Sridharan of Metro, and many such men of mettle alongwith strong younger professionals who are both expert and passionate. This kind of a steering group could surely create a system that may yield results. The Government should support this wholeheartedly. A definite number of experts are willing to contribute their efforts towards Nation Building at this critical juncture.
Image - Modi-Abe & US-China Trade Deal File Pic, Courtesy- SCMP, ZEE News
ABOUT DILAWAR SINGH
(Major General Dilawar Singh, an ex-Infantry officer, who has served six tenures in Terrorist areas, commanded two Counter-Terrorist Battalions, is the only officer to have received three citations therein; He was in charge of Army Finance for the Indian Army and headed the financial research team. He is currently the Senior Vice President of the Global Economist Forum, ECOSOC, UN, is the director of a Global Chamber and also heads a global youth initiative engaged in developing Patriotism & Nation-building among the youth)
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