Indian high tech manufacturing may be the big winner as rich countries around the world are rethinking globalization and their heavy reliance on China as the coronavirus pandemic slows down.
It has been a bad year for Chinese businesses working around the globe. Tariffs and the trade war between China and the US forced many companies to rethink supply chains and where they make and sell goods. Many other companies have been looking for alternatives because of the increased labor costs and more strict environmental laws. But that was just the beginning of China's problems.
The COVID-19 pandemic started in the country, led to shutdowns and forced people to stay at home. As it spread, factories, shops, restaurants and schools around the world were closed. Millions lost their jobs and economies went into tailspins. Though some countries are again open for business, recovery will be slow and painful. Talk of recession is everywhere.
China has come under scrutiny as the source of the virus and as a place to do business. The US has been most vocal, but they are not alone. Other countries are looking to shore up their own manufacturing and businesses are looking for the path of least resistance.
India just extended its nationwide lockdown until the end of May and reported its 100,000th case of the coronavirus. Its economy has come to a near halt and unemployment has exploded, with the poor being hit the hardest
For India this could be a big opportunity despite its own lockdowns and economic troubles.
On May 12, the prime minister, Narendra Modi, announced that his government would provide 20 trillion rupees (€242 billion, $266 billion) in help to stabilize the economy. Part of the plan is around $60 billion of loan guarantees for small businesses, lenders and power companies.
Overall the plan will "focus on land, labor, liquidity and laws," said Modi. Besides stabilizing the economy, he hopes this will also make India a more attractive partner. "These reforms will promote business, attract investment and further strengthen 'Make in India'," he said.
A technological solution
One way India wants to overtake its neighbors is with a new incentive program put in place in April called the "Production Linked Incentive Scheme (PLI) for Large Scale Electronics Manufacturing." The plan targets makers of mobile phones and certain electronic components by offering them financial incentives to start or build up their existing domestic manufacturing capacity.
The program will pay tech manufactures an incentive of 4-6% on incremental sales of goods manufactured in the country for five years starting August 1. To get the most out of the program, manufacturers have to make at least $10 billion worth of goods between 2020 and 2025.
Pime Minister Narendra Modi has launched his "Make in India" campaign in 2015 to lure manaufacturers from around the world to produce in India
According to the government the country's share of global electronics manufacturing has gone from 1.3% in 2012 to 3% in 2018. The program is meant to increase that even more by compensating business for the country's "lack of adequate infrastructure, domestic supply chain and logistics; high cost of finance; inadequate availability of quality power; limited design capabilities and focus on R&D by the industry; and inadequacies in skill development," according to the official notice printed in The Gazette of India.
Though limited to a small sector of the overall economy, the scheme may already be having an impact. Last week it was reported that Apple may move some of its production out of China to India. It would be the first big tech company to take advantage of the new government scheme.
An apple a day
So far Apple has been quiet on the matter, but India's The Economic Times picked up the story and reported that the company is in talks with government officials about making up to $40 billion worth of iPhones over the next five years by ramping up production at their current contractors Wistron and Foxconn.
"India isn't a big market for Apple as the company sells only a fraction of its total output in India. It is actually looking at India as a base to manufacture and export, essentially diversifying its production out of China," a senior government official was quoted in the newspaper.
If reports are true it could turn Apple into the country's largest exporter. It would also mean that the company is moving around 20% of its current Chinese production to India. In China, Apple made products valued at $220 billion from 2018-2019, a majority of which it exported.
Though this program comes at a time of economic disorder, the foundations were actually laid during calmer times in December when Modi met with executives from Apple and Samsung. Yet it is now more important than ever to attract big contracts if India wants to turn the current globalization upheaval to its own advantage.
Hedging its bets
Apple like many companies is looking out for its own interests. Because of trade conflicts and the ongoing coronavirus pandemic, it would make sense to spread their risk. But is the planed move to India just a test or really the start of something bigger?
So far the numbers out of China have been sobering and point to a long uphill battle for its economy. QIMA, a quality control and supply chain auditor, called the first three months of this year "by far the most turbulent quarter" since they started looking at trends in 2012. The auditor, which works in 85 countries, pointed out that sourcing from China was down 19% in March compared to last year.
A poll they did in late February of over 200 businesses with international supply chains showed that 87% of those who responded said the current situation will force them to make changes to their supply chains going forward.
QIMA's outlook for the second quarter of 2020 is not much brighter. It sees China heading toward a demand slowdown just as its manufacturing capabilities go back online. Additionally, the unprecedented disruptions to global trade show how risky it is for supply chains to depend on single sources and concluded that "geographical diversification of sourcing will soar to new heights when global trade resumes."
As the world scrambles to pick up the economic pieces, perhaps the time is right for India to turn "Make in India" into a global trademark.