Karanjawala & Co
Karanjawala & Co
The Viewpoint

The Viewpoint: From made in China to Made in India

Just a few months back, it was business as usual. People going to their offices, business being carried out at full pace, significant decisions being taken at all levels and India being yet another nation trying to solve its glitches like any country. Plus United States, just ahead of its President’s visit to India, had removed India from the list of developing countries that harmed the American industry with unfair subsidised imports. And then Corona, which was not taken seriously by many countries thanks to a developed country, was declared a pandemic which brought the entire world to a halt.

Despite all measures taken by India including Janta curfew and social distancing, Corona refused to budge which eventually led to a complete lockdown across the nation. We were forced to rethink our priorities. Air quality improved. There were instances of wild animals enjoying a stroll on the roads. We started taking the initiative to do our daily chores without any external help.

How it Started

At the same time, the trade war launched by US President Donald Trump against China sent businesses on a frantic search for alternative supply chains. Last year, Washington added Huawei, a Chinese multinational technology company and 68 of its non-US affiliates to a trade blacklist known as the Entity List. The said step was taken as the company was accused of being a threat to national security. The action curbs Huawei’s capability to buy hardware, software and other services from its American technology suppliers without prior authorization from US government. This also includes Google mobile services, used on almost all the handsets across the world and other crucial components in its next-generation mobiles and networking. If this is to be read vis-a-vis the visit of President Donald Trump to India in February and the growing relations between India and USA, this is indeed a bad news for China but a good news for India.

At an event in Washington three weeks back, Florida senator Rick Scott used the term “Communist China” 25 times in a 10-minute speech pushing the idea that the coronavirus epidemic should be used to severe all the trade relationships with China and even if it has to continue, there should be numerous restrictions in order to give US an upper hand. And thus, the formation of an opinion of Make in India.

Can India ‘MAKE IT’

For India to become the next manufacturing dynamo, it must first learn from China – with or without the coronavirus. Despite the fact that China, which is currently the manufacturing hub of the world, has been hit hard due to the disruption of supply chains across all sectors, it would be a daunting task just to overcome the challenges that our own country is facing to overcome from COVID-19. But the main task is to set up an apposite supply chain network, plus the skilled as well as the unskilled labour to operate it.

The real question is can India seize the opportunity to give China a run for its money in global manufacturing. The answer is simple yet complicated – before replacing China India needs China. It’s not that foreign entities have no faith in India on the investment front. Recently, Facebook invested $ 5.7 billion in Reliance Jio amid COVID – 19, proving the fact that even now, foreign companies are confident of the potential future growth of the Indian economy. It is just that the financial policies, various labour laws and lack of infrastructure plus transport act as a major hurdle and thus turns a prospective investment away.

Despite all the odds, since Chinese investment in Indian industries has augmented in the last few years, China has in fact become a tutor for the path of industrialisation. This can be understood since for almost all the industries, China has not only supplied India with large quantities of raw materials and capital goods but has also its investors, engineers and other available technology to assist in production and manufacturing.

Necessity of Legal Reforms

The most important factor that can influence and enable India to be a new destination for foreign companies to enter and set up their units in India unquestionably depends upon a number of deep legal reforms and amendment of laws including foreign direct investment and labour reforms in order to attract firms and companies exiting China to enter into the Indian territory.

Over the years the complex laws in India and the stringent penal consequences attached to these laws, alongwith complex bureaucracy and overall corporate environment, has been responsible for not charming firms and companies to establish the units in India despite the availability of massive manpower, land resources and other assets including raw material. It would not be out of the place to mention here that lately the Government of India and various state governments have taken steps to simplify and put together complex labour laws pertaining to wages and other industrial dispute, health and safe working conditions of workers in order to give more flexibility to the industries while ensuring that the benefits to the labour and industrial workers is kept at equilibrium. One of the controversial laws is the Industrial Dispute Act which does not allow company with more than 100 workers to remove and terminate them without government approval. The various laws which need an overall modification are the Payment of Wages Act, the Workman Compensation Act, Minimum Wages Act and Industrial Safety Tools. It seems that it took a pandemic for our country to start thinking and looking into optimistic reforms into necessary laws relating to workforce.

Hurdles to Toil Upon

One of the most important aspect to understand is that the movement of companies away from China to other less-developed countries like India would trigger a new wave of industrialisation for which a state of readiness is required. Undoubtedly, majority of the Indian market is focussed more in domestic production than that to cover the rest of the world. The reasons are numerous ranging from lack of infrastructure to strict regulations of the government. Also, there are only few locations in India which are suitable for large-scale production and there are logistical hindrances in getting raw materials to these hubs and in getting the final goods out.

It goes without saying that in order to become a manufacturing giant, the large-scale reskilling of workers is required to take on the jobs which might move from China, will not happen overnight. This requires significant financial assistance/investment from both the private as well as he government sector. India has a lot of skilled and un-skilled labour which is enough to take up the tasks bestowed to them but the same requires a lot of training and awareness amongst the workers scattered across the geographical terrain of the country.

At the same time, before any major revamp that India expects, it has to relax or reorganise various provincial laws and more specifically labour laws, which means that laws differ from one state to the others and which makes things difficult for potential investors. Politics has to be given a back seat since we are talking about taking India to the next level. There are a number of instances wherein the government in a particular state gave permission to set up an industry and after the elections, the subsequent government withdrew the consent for obvious reasons. Therefore, such practices have to be abolished.

It goes without saying that in order for any country to become an industry hub, impeccable transportation has to be provided by the country. That includes the separate airways and waterways to be used exclusively for the industry. At present, we are lacking such facilities and this has hindered the expedient movement of raw materials or the final end products to the necessary destination.

To be the Best, You got to Beat the Best

Unfortunately, the real scenario is that if India wants to replace China, it has a lot to learn from China. A decade ago, China was nowhere on the map of being a manufacturing hub. Many experts have rightfully said that it was not a war that was won overnight. At the initial stage, even China faced similar problems that India is facing. But now, it has fought its way to reach on the top. And thus for India, though it is not going to be a laidback mission, it is not going to be impossible as well.

So coming back to the question in hand – does India has the resources and the manpower to turn this dream into a reality. The answer is yes if, and only if, India is ready to go through an enormous revamp of a number of structural policies as well as increasing opportunities to woo the foreign entities. It would not be out of the place to mention here that as on date, we have numerous policies that people think are enough to attract foreign entities. Despite that, we are unable to attract the attention of the world as China does.

Conclusion

In today’s world, modern manufacturing has a refined multi-tier arrangement: those directly connected to the assembly line are the first-tier contractors, who have second-tier contractors of their own, who may, in turn, have a third tier of contractors. In short, manufacturing always needs a backup for its supplies as well as suppliers and is not dependant on any one entity. So even if the Indian government successfully attracted some manufacturers with their first-tier suppliers, it would still need to cultivate a suppliers’ network and a huge cluster of supplies for various industries which again would be a daunting task. But then, everything is theoretically impossible unless and until it is done.

Author - Samarjit Pattnaik, Partner Karanjawala & Co. and Satyam Chaturvedi, Senior Associate Karanjawala & Co.

Samarjit Pattnaik and  Satyam Chaturvedi.
Samarjit Pattnaik and Satyam Chaturvedi.
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