BY- PRATYAKSH DWIVEDI, SAHIL VARDHAN, DEV TYAGI (UNDER GRADUATE STUDENTS AT CHRIST UNIVERSITY)
INTRODUCTION
China is holding the position of world’s factory since three decades and main reason behind this is the unique mix of low production cost and massive manufacturing capacity. However with recent chain of events which includes increase in geopolitical tensions, rising labour cost and supply chain vulnerabilities ( exposed during the COVID-19 pandemic ) have led to many countries and companies to rethink of their overdependence on China. The shift in the mindset has led companies to adopt a China+1 approach, where they maintain manufacturing in China but also establish operations in at least one other country to diversify risk and strengthen supply chain. From this India comes in picture because of its size, demographic advantage and market potential. But the question is can India truly replace China as world’s manufacturing hub? Or it would be better to ask whether India can establish a strong complementary position in global manufacturing?
WHY CHINA+1?
Rising labour cost which is making it less attractive for manufacturing, Geopolitical tensions with major countries have increased the risk of solely relying on China ( Example : US-China relation), Supply chain disruptions (trade restrictions, tariff imposition, military conflict) and Political risk arising from escalating tensions between China and Taiwan adds to more instability. India must seize this opportunity to position itself as a complementary hub in sectors like electronic assembly, automotive components, EV’S, pharma and textiles. Apples’s decision to assemble it’s I phone in India is now making up over 14% of its global productions which shows how global manufacturing is starting to shift. Big companies like Micron and Samsung are also investing billions in building semiconductors and display factories. However this shift is slow and relies a lot on government policies, strong infrastructure and long term reforms.
INDIA’S BIG ADVANTAGES
Large and growing market- A domestic market of 1.4 billion allows companies to manufacture for both local consumption and export. Increase demand for electronics and vehicles because of rising middle class.
Demographic dividend- India has a large number of population which is young when compared to China. Median age of India is 28.2 years whereas China’s is 39 years . Moreover young, dynamic workforce available at lower cost then compared to China. Moreover English speaking population adds more advantage for multinational firms.
Government Initiative- Make in India launched in 2014 to boost manufacturing. It focused on easing regulations, improving infrastructure, attracting foreign direct investment and offering sector specific investments. On the other hand (PLI) Production Linked Investment Schemes gave a push to manufacturers in sectors like electronics, semiconductors, pharmaceuticals, EV’S, solar and textile. Over the past few years, India has become the second-largest mobile phone manufacturer in the world, largely due to aggressive government support through the Production Linked Incentive (PLI) schemes. India currently ranks third in the world in terms of pharmaceutical production by volume and top vaccine producer in the world. Moreover in ease of doing business India jumped from 142 to 63 (2014-2020) in World bank rankings before the index was discontinued.
Increasing FDI inflows- India has witnessed record FDI inflows, crossing $70 billion annually. Electronics, EVs and semiconductors are major growth areas. Companies like Apple, Foxconn, Samsung, Tesla, and Micron are expanding operations.
Strategic Geography- India is closely located to key markets like Middle East, Europe and South East Asia. It also has a long coastline with multiple deepwater ports under development.
KEY CHALLENGES THAT HOLD INDIA BACK
Infrastructure Gaps- Despite making progress, India’s logistic, ports, highways and power infrastructure still lag behind China. Chinese cities like Shenzhen and Guangzhou provide ready to use industrial setups with world class connectivity, while India is still working to reach that level.
Complex Bureaucracy- India has made improvement in Ease of Doing Business ranking. However on the ground level Red tape, land acquisition hurdles and regulatory inconsistencies remain major barriers to large scale FDI in manufacturing.
Skill Gaps- Though India produces millions of graduates annually but vocational and industrial training is still underdeveloped. Many companies face difficulty to find workers who have technical skills which is needed in advanced manufacturing.
Fragmented supply chain- India lacks industrial cluster that China has cultivated over decades. For example, an iPhone manufacturer in China can source dozens of components from nearby cities. In India these ecosystems are being built now.
Weak MSME Ecosystem- India’s manufacturing industry is controlled by Micro, Small, and Medium Enterprises (MSMEs), who typically have no access to finance, technology, skilled labour Digital adoption struggles and costs of compliance are weakly integrated into global supply chains. In contrast to China, where small and mid-sized firms are highly integrated into large export ecosystems.
Low R&D and Technology Investment- India spends a mere 0.64% of GDP on R&D compared to China who spends 2% . Indian manufacturers rely primarily on imported technology, are low-tech or mid-tech and lack in-house innovation skills.
Energy Reliability and Sustainability- Many industrial regions face intermittent power supply as a result they rely on backup generators and high energy costs reduce competitiveness. While India is expanding renewables, industries still lack stable access to clean and cheap energy, which is a growing requirement for global manufacturers.
Not China 2.0 — But India 1.0
It’s not possible nor desirable for India to follow China’s model of manufacturing. China’s success was supported by authoritarian rule, huge government subsidies, and four decades of infrastructure investment. India, a complicated democracy has to find its own way. Rather than aspiring to be the next China, India should aim to be “India 1.0”. A manufacturing powerhouse in core industries like-: Electronics and semiconductors, Electric vehicles and batteries, Pharmaceuticals, Textiles and apparel, Defence and aerospace.
With its strengths in focus and the development of sector-specific industrial clusters, India can take a leading role in the future multi-polar manufacturing universe.
Conclusion: Can India Replace China?
Not entirely but it can still become one of the world’s leading manufacturing hubs, in its own unique way. China has built a massive deeply integrated manufacturing system over many decades. Its dominance won’t disappear overnight and also it’s not our goal.
India doesn’t have to outright replace China in order to be successful, it only has to position itself as a solid and competitive backup option for international businesses considering diversification. The decoupling from China is already underway, and India is well placed to capitalize on it. But to really gain, India must continue the pace and implement significant changes by upgrading roads, ports and electricity supply.
Streamlining rules and procedures to make business easier, building more skilled labor for next-generation industry, creating stronger domestic supplier networks. Most Indian factories still rely on imported components and materials that incurs expense and delay. To be more competitive, India has to create indigenous supply chains i.e., more Indian businesses ought to be able to supply components, tools and services quickly and cheaply. This will create jobs and strengthen the entire manufacturing ecosystem. If India can make progress in these areas it doesn’t need to copy China, it can forge its own path and become a major manufacturing centre for the world. Not as a replacement for China but as a powerhouse in its own building on its own strengths, talent, and potential.
Authors : Sahil Vardhan
Twitter id : https://x.com/VardhanSahil20?t=6UmgB_vLaFJXQYnNpl9xgg&s=08
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