Wednesday Post

Friends, when Covid pandemic started and full world started turning against China. That time there was big move to attract the manufacturing companies to quit China and relocate themselves somewhere else, then PM Modi took initiative to invite all those companies who want to quit China, to come to India and relocate themselves, and promised govt will go all out to help them in starting their manufacturing in India.  Nothing has been much heard about on this issue and whether govt has started  any earnest attempt in this matter. Now first let us see why so many manufacturing units  are located in China.

Advantage No. 1– Ease of Acquiring land for setting up manufacturing facility. In China they have commission which has of land ranging from o.25 acres to 250 acres, which can be leased to companies from 9 years to 9 years in 999 years at very low cost. No body can interfere. No court can put a finger on your lease, no opposition can start any protest.

Now let us see, what happens in India- Leasing of land is generally no option , you will have to purchase land outright. The land purchase deal can be blocked at various levels like Panchayats or Municipality, State govt, the courts and many other parties- all of which have to be taken care (except courts) to ensure proper ownership. Anyone can interfere. A third party, A neighbour, any court in the country, any opposition can cause the problem. The process of acquiring land in India can take anywhere between 1 to 1.5 years, where as in China it is max 45 days. Now let us see what is being done in India, about this issue:

The Indian government has hand-picked 10 sectors – electrical products, pharmaceuticals, medical devices, electronics, heavy engineering, solar equipment, food processing, chemicals, and textiles – as focus areas for promoting manufacturing in India. So far, firms from the US, Japan, South Korea, and even China have expressed interest in moving their operations to India from China.

Along with making land available for foreign companies, India is also building local supply chain capacity and providing incentives to boost local manufacturing in order to emerge as a viable alternative manufacturing hub for global firms. India is ramping up its efforts since foreign investors have been keen for some time to reduce their reliance on China – due to rising costs, new geopolitical risk factors, and the experience during Covid 19. A key contention is that businesses must be able to work their operations and factories, regardless of some event or disruption in one country, by ensuring the risk is spread across different regions or minimizing the exposure to such disruptions. Regardless of what is motivating companies to consider leaving China – their decision will not be made readily. At the same time, China’s advanced infrastructure and supply chain ecosystem has not stopped the export-oriented economies in Southeast Asia from becoming leading manufacturing hubs, which means India will need to assert itself with clear incentives, particularly in the land, tax, and labor domains. Changing the perception that India is a competitive place to do business requires that multiple factors are simultaneously addressed – not mere promises of land availability.

Below we briefly discuss some of the challenges associated with land availability in India, incentives from Indian states that foreign investors can come to expect, and whether India is ready for foreign firms relocating their setups.

In a bid to attract foreign investors looking shift their operations out of China, India is developing a land pool twice the size of Luxemburg. A total area of 461,589 hectares has been identified across India, including 115,131 hectares of existing industrial land in few prominent states, such as Gujarat, Maharashtra, Tamil Nadu, and Andhra Pradesh. The government will ensure the land being made available for foreign firms is either unused or located in Special Economic Zones (SEZs) with key infrastructure already in place.

In May 2020 around 1000 companies had shown inclination to shift their manufacturing from China to India.

Advantage No. 2– In China Labour agency can provide you any trained labour force as per your requirement in 330 to 45 days. The company has to just pay to the labour agency lumpsum salary per month, and it is duty of labour agency afterwards to take care of labour.

In India- There is no trained labour force in abundance, you may have to train them. Labour will make all sort of demands and may even unionise. State will also have quota system in hiring labour. Even politicians may also interfere. It may take up to 1 year to get labour started.

Nothing has been done by the govt on this matter, and companies may get discouraged if nothing is done to change the existing labour  laws.

Advantage No. 3– In China all the machines are made and manufactured in China, so machines can be made available in record time.

Now in India most of the machines need to be imported, which could take much time. Spare parts procurement also take time.

Here , India can not do much immediately.

Advantage No 4– In China once the product is ready , China has readymade networks which can ensure your product is despatched to market destination anywhere in the world within 14-21 days.

Now here in India-the networks are not existing and every steps requires coaxing different people right upto export inspector. This costs more money and may take minimum 45 days.

So unless we do some thing about labour laws and distribution infrastructure it will be very difficult to make India as manufacturing hub, which can replace China’s manufacturing hub in the world market.

So, our country has to improve so many things, to attract manufacturers from all over the world, including relocation of existing manufacturing facilities from China.

Gujarat is offering special packages to overseas investors like-all new projects that operate for at least 1,200 days or are operational for 1,200 days will be exempted from all labour laws, except three. As per media reports only labour laws pertaining to paying minimum wages, following safety norms, and compensation for workers in case of industrial accidents will be applicable. Gujarat will also allow labourers to work a 12-hour shift, instead of 8-hour shifts, with extra pay for the additional work hours.

Other states like UP, Karnataka and Telangana have also announced various packages in this regard.

But, most importantly, India’s highly bureaucratic structure of functioning hinders the ease of doing business in the country – but this differs from state to state. Ultimately, foreign companies need more than land availability to finalize India as their destination of choice for relocating their established manufacturing and production enterprises.

Awaiting your views/feedbacks/comments.

Anil Malik

Mumbai, India

2^nd September 2020