PremiumIndia is looking to position itself as an alternative manufacturing destination for global companies after the coronavirus outbreak exposed how heavily they are reliant on China for raw materials and production.
Top government officials are holding meetings with industry representatives as the disruption in China due to a lockdown in huge swathes of the country has opened up opportunities for India to emerge as an alternative manufacturing destination.
“There is a lot that needs to be done. India needs to work on many issues such as taxation, regulatory mechanism, factor markets, the financial sector and data privacy," contended N.R. Bhanumurthy, professor at the National Institute of Public Finance and Policy. Countries such as Indonesia and Vietnam would also try to seize the opportunity, he said. “Historically, we tend to move two steps forward and one step back on reforms."
Emerging nations such as Vietnam have been attracting global manufacturers because of fewer regulations, lack of bureaucratic red tape and lower wage bills, although India has more skilled workers well-versed in information technology. Now, the imminent supply disruption from China is forcing India to take a hard look at the road ahead.
The need for India to build up self-reliance on manufacturing has become even more urgent as the deadly virus has spread to other manufacturing hubs such as South Korea, Singapore and Taiwan.
As part of the plan to attract global investments, the environment ministry now aims to streamline processes and fast-track clearances for establishing manufacturing units for drug raw materials. Indian drug makers rely on China for over two-thirds of the supply of bulk drugs—key ingredients that give medicines their therapeutic value.
Three years ago, a draft pharmaceutical policy had proposed an enabling environment for mega bulk drugs industrial parks. It was not implemented due to a lack of urgency as supplies were coming from China, an official said on condition of anonymity.
“The coronavirus outbreak in China provides India an opportunity to increase capacity of bulk drugs in India," said Bulk Drugs Manufacturers Association president V.V. Krishna Reddy. “India being the second-largest producer of bulk drugs in the world is best placed to provide an alternative to China in terms of API (active pharmaceutical ingredient) source. However, this would require a lot of investment and a strategic plan for the next 20-30 years."
“The industry requires dedicated industrial parks providing effluent treatment facilities and solid waste disposal sites, apart from cheap power and finance at competitive rates, among others, to close the gap with China," he said.
Environment clearances take months for such API units and this hampers industrial capacity and utilization. India has an average capacity utilization of between 30% and 40% as against China’s 75%. Industry experts said the government’s lackadaisical attitude has exacerbated this problem gradually, according to a report from the commerce and industry ministry.
Indian manufacturers already sense a business opportunity and have ramped up production of medical goods such as masks. This comes amid a worldwide shortage because of a surge in demand in China.
Besides, lingering tensions between the US and China on trade issues may prompt Western manufacturers to shift to India if a conducive policy framework is provided, industry executives said.
“We need to woo the tech multinationals more aggressively as India has already become an attractive destination for investment because of the corporate tax cut," a government official said on condition of anonymity. In September, India cut the base corporate tax rate from 35% to 25%.
Indian textile companies are expected to be one of the biggest beneficiaries if they can ramp up production to seize the gap left by China, one of the biggest suppliers globally.
“As far as the textiles and fabrics sector is concerned, definitely local manufacturers of man-made fibres would have a good opportunity; man-made fibres such as polyester were coming in from China," said Rahul Mehta, chief mentor and former president of the Clothing Manufacturers Association of India.
There could be a possible upside to the outbreak—at least for manufacturers in Bangladesh and India—as global suppliers look for alternatives to procure garments and textiles, it said.
Asit Ranjan Mishra, Srishti Chaudhary, Suneera Tandon and Prasid Banerjee contributed to this story.
