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Western Assemblers are encouraging its supply chain units to shift from China to India


Indian manufacturing tempo may increase further due to more foreign investments

By Subrata Majumder

Suddenly, is emerging as a favourable destination for western assemblers operating in manufacturing sector. Till now foreign investors were encouraged or asked to shift from China by Japan. Japan launched incentives for Japanese investors to shift from China. US-China conflict also discouraged the US investors from expanding their operations in China. The latest is the western assemblers are encouraging their Chinese supply chain units to shift to India.

Apple of USA is planning to increase its production in India. The company encourages its Chinese supply chain companies to shift to India. Grave concerns have been raised in China over western assemblers move for Chinese supply chain units shift to India. According to Chinese Global times, this raised urgency for China to protect its critical supply chain capacity.

Apple is expected to increase production of iPhone to 50 million in the next 3-4years in India. This will account for one-third of Apple's global production, according to Wall Street Journal. Production will increase tens of thousands with India emerging as the biggest user of smart phones and fast growing nation for digitization.

“This is not the first time we've seen reports of Apple increasing iPhone production capacity in India. In fact, Apple is just one of the Western manufacturers that have moved capacity out of China amid Western calls for supply chain diversification, and India has been seen as a very promising candidate to become the next manufacturing powerhouse “, Global Times said.

Apple has pushed Chinese battery manufacturer, Desay (Huizhou Desay Industrial Company), to establish new factories in India, according to Financial Times.

As a result, Chinese investment made a big jump in India. It increased five times in 2023. Till September, Chinese investment in India was US $ 41.98 million in 2023, against US $9.91 million in the full year of 2022.

The reason why western assemblers want their Chinese suppliers to shift to India is this. It is difficult for them to find replacement for critical components in the beginning in the country. This demonstrates western assemblers reliance more on India than China, owing to uncertainty of China's macro level growth. Fall in growth and rising costs in China lead western assemblers to diversify from China.

Against these, sustainable growth in GDP, larger pool of working population, improvement in the logistic performances and policy initiatives in manufacturing of new industries in India boost attraction for supply chain.

Robust growth in GDP in the 2nd quarter of 2023-24 (July-September) and the structural changes in the growth parameters establish India's capacity for larger stake for alternative supply chain. During the period, India recorded 7.4 percent GDP growth, with manufacturing taking a lead in triggering the growth . It increased by 13.9 percent during the quarter – the fastest ever growth since COVID.

Simultaneously, with the rising GDP growth, India improved in Bank Logistic Performance Index – one of the key factors to attribute to supply chain growth. It jumped up by six points to 38 in 2023 from 44 out of 139 countries. In October 2021, India launched Prime Minister Gati-Shakti Mater Plan and in September 2022, it launched National Logistic Policy. In Gati-Shakti programme, India plans for making 200 new airports, heliports, water aerodromes to support aviation. Both gave emphasis on more efficient mode of transportation, improving time spending by cargo at ports and airports.

India emerged 2nd in Global Manufacturing Risk Investment Index in 2021, according to Cushman & Wakefields. It has overtaken USA in manufacturing risk. According to Julie Gerdeman, the CEO of Everstream, supply chain risk management platform, “India has a large labour pool, a long history of manufacturing and government support for boosting industry and exports. Because of these, many are exploring whether India is viable alternative to China”.

A persuasive example for India to overtake China is the Japanese investor's lean towards India. Even though India accounts for one-fourth of Japanese companies in China, Japanese companies in India performed better than China. According to a survey by JETRO, the number of Japanese companies making profits in India increased in 2022, in contrast to fall in number of Japanese companies in China making profits. The survey revealed that 71.9 percent of Japanese companies in India surveyed reported profits in 2022, against 64.9 percent Japanese companies surveyed made profits in China. These demonstrate the downturn of Japanese investors' attraction in China.

PLI scheme (Productivity Linked Investment) increased new hope for manufacturing growth in supply chain. Launched three years ago, it has drawn several success stories, which can be gauged to outnumber China.

FDI soared in manufacturing. It increased by 76 percent in manufacturing sector in 2021-22 over 2020-21. It boomed in electronic and electrical equipments. In electronics it increased by 172.2 percent and electrical equipment, it increased by 61.6 percent in 2022 over 2021.

Production of mobile phones made a galloping growth. From merely US$ 3 billion in 2014-15, it increased to US$ 44 billion in 2022-23. Export of mobile phones increased from US $ 0.26 billion in2014-15 to US$11 billion in 2022-23.

It is interesting that while China desisted India to be the supply chain hub after India de-coupled from RCEP, western assemblers encouraged Chinese supply chain factories to shift to India. (IPA Service)

The Northlines is an independent source on the Web for news, facts and figures relating to Jammu, Kashmir and Ladakh and its neighbourhood.

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