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India can be the world’s great back-up factory

India’s ambitious production-linked incentive (PLI) scheme, designed to facilitate the country’s emergence as a global manufacturing hub for mobile phones and electronic components, appears to have gotten off to an encouraging start. As many as 11 global handset and input makers—Foxconn and Samsung among them—are reported to have qualified for special incentives spanning five years, along with five domestic entities, including the makers of Lava and Micromax devices. The government expects the initiative to result in output worth 10.5 trillion over half a decade, about 60% of it from exports. The big feather in our cap, of course, is the interest shown by Apple Inc’s supply network in expanding operations here. Except Korea’s Samsung, all the foreign firms on the PLI list work for the California-based company as contract manufacturers. And it is not just about tele-mobility. With the high-end electric car sensation Tesla seen to be on its way in, India could play itself up as a factory to the world for some of its most fancied products.

What may be working in India’s favour is the “China plus” strategy for global value chains that has gained appeal among transnational corporations keen to diversify their sources of supply, especially after the risks of their Chinese dependence began to rise. Their anxieties were first evoked by US President Donald Trump’s trade war with China and efforts to isolate that country, and have been aggravated by apprehensions of a “bamboo curtain”—like the iron version of the Cold War era—foreseeably splitting the world apart into western and eastern blocs. Worries have also arisen of mala fide intent on the part of Chinese businesses that have little choice but to kowtow to Beijing. As a constitutional democracy sworn to uphold the rule of law, India ought to be considered a far safer bet. Yet, we should not labour under the illusion of those factors overriding cost and revenue calculations. For all of Beijing’s misadventures, China is not about to lose its tag as the world’s factory. In a snub to Trump’s call for America Inc to decouple from China, a recent survey of over 200 US firms operating in the People’s Republic revealed that only about 4% were shifting some production back to the US. Not only does China remain an attractively cheap place to make stuff, it also offers a huge domestic market that might take us rather long to match.

For India to strengthen its appeal as a country to set assembly lines rolling in, we must not draw the wrong lessons from China’s success. Cherry-picked businesses should not be given privileges at the cost of people at large, for example, as Beijing has long done. It should be easy for all to do business. Recent changes in our labour laws may be a salutary move in that direction. Wage bill flexibility is crucial for any large-scale export venture. But there are plenty of other compliance requirements that need to be whittled down. Our land acquisition policy needs clarity, too. As of now, state-earmarked parcels are all we have on offer. Investors, though, need greater choice. Skill and infrastructure gaps must get plugged as well. An assurance of policy stability will also help. Our import duties have seen too much flux of late, for example, while every link in a global value chain—which must operate across borders—must allow reliable cost projections. Plus, taxation could do with an overhaul to simplify a jumble of levies. If we get it right, India could be the world’s back-up factory. Live Mint

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