India as the New Manufacturing Hub
Apple, one of the largest tech companies in the world, will be producing 7% of its iPhone’s in India, this is quite a feat and shows the growing popularity of India as a manufacturing destination. While for several decades the service and agricultural sector dominated the Indian economy, manufacturing is catching up with several large companies looking to shift production into India. This comes with the growing concern of companies to rely on China for major production needs. China as a manufacturing hub is now looking to be a thing of the past. So, is India going to take over?
The pandemic disrupted production and supply chains worldwide, but with the early start of lockdowns in China the production for several companies stalled very early on. This was one of the first signs for companies to reduce their heavy dependence on China, and the growing political conditions and instability is an added concern. Apple has relied heavily on China- of their top 200 suppliers, 155 operate factories in China (Wakabayashi and Mickle 2022). The pandemic has also shown companies the need for diversification in order to mitigate any manufacturing shocks due to unprecedented events. There is also a trade war of sorts going on between the US and China, with former president Trump setting a 15% tariff on tech products manufactured in China. Lastly, border concerns and the high cost of labour in China is another reason companies are looking to shift production.
India recently took over China as the world’s most populous country, the Indian population is relatively young and there is a good mix of readily available skilled and unskilled workers. Moreover, a lot of the population has basic technical knowledge and the cost of labour is much lower as compared to China. The service sector deteriorated in the pandemic, showing the government that heavy reliance on one sector is potentially dangerous for the economy. This realization encouraged the government to push for several initiatives to improve the manufacturing scenario in India. There is the “Make in India” initiative, which encourages companies to produce in India through an incentive scheme. The production linked incentive (PLI) scheme gives 4-6% incentives to IT manufacturers. The “National Manufacturing Policy” aims to improve India’s GDP through advancement of the manufacturing sector- the sector is projected to add $500 million a year by 2030. India also has a good supply of raw materials and natural resources due its geography.
Apple increased iPhone production in India and opened two physical retail stores, AirPods will soon be produced in India. Amazon is projected to invest 13 billion USD by 2030 and has already been producing its fire TV stick in Chennai. Walmart is looking to open stores in India and Foxconn- an electronics manufacturer- is investing to set up manufacturing units in India.
However, there are some hurdles in getting India to be the next manufacturing hub. Vietnam is emerging as India’s main competitor when it comes to taking over this sector. Secondly, Indian labour laws are extremely rigid with a strict cap on the number of working hours and wages. This demotivates businesses to manufacture in India. While India has great potential to be the new manufacturing hub, the government should continue to incentivize companies to set up factories here to keep up the momentum.
Arshiya Khattar, the writer is a student of Economics at KREA University and pursuing her internship with VeKommunicate.