China’s loss can be India’s big window of opportunity
India’s bid to attract foreign capital just received a shot in the arm. Foxconn announced in an exchange filing that it will invest $1.6 billion on several projects in India. Though the details are not yet known, the funds are for ‘operational’ needs, possibly to set up two factories in Karnataka for the manufacture and assembly of iPhones. This is one among many examples where Foxconn, also known as Hon Hai, and other Taiwanese manufacturers are continuing to exit China in preference for countries such as India, Vietnam, Malaysia and Indonesia. Big US multinationals have also announced they are diversifying their investments. Intel and Microsoft are moving some operations from China to the US. Nike and Dell said they will relocate to Vietnam and Mexico.
There is a growing disenchantment with China. The political climate under Xi Jinping has turned increasingly nationalistic and unstable. Their post-pandemic rebound has been tepid because of a real estate slump and growing local government debt. The uncertainty has pushed Chinese families to save rather than spend, thereby depressing demand. In August, foreign investors pulled out $12 billion from Chinese equities, while India saw a net inflow of $1.5 billion. India is scoring over China on growth too: the IMF has predicted India’s real economy will grow at 6.3 percent through 2023 and 2024, while China will grow at 5.0 percent and 4.2 percent.
Pandemic-induced supply chain disruptions are continuing to sink in everywhere. In India, private aviation consultancy CAPA has predicted as many as 200 of India’s 789 aircraft may be grounded by end-March because of supply chain issues. China’s disruption as the intermediate manufacturer to the world has opened an enormous window for India, if she gets it right. China became the world’s manufacturer of choice for four reasons: low labour costs and a young workforce; government support through tax breaks and subsidies; good infrastructure of airports, ports and communication; and a strong technology sector to lean on. Apple, which has led the investment shift from China to India, has cited all these reasons, underlining that a vast skilled workforce and the scope to increase sales in India if it manufactured locally were the clinching factors. India seems to have had a good start. Creating a stampede of investors will now depend on two factors—whether we can reduce red tape and how quickly we can provide the necessary infrastructure.