Indian Manufacturing and Import Tariffs
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The Covid pandemic revealed weaknesses in global supply chains, and recent tensions between the United States and China have companies rethinking their global strategy. A case in point is manufacturing. Many companies are now pursuing a China Plus One strategy to reduce the risk of putting all of their manufacturing eggs in one basket. Eyes are turning towards India as the next great manufacturing shop floor.
There are good reasons to like India for manufacturing. They have a large and increasingly educated workforce, wages are generally low compared to China, and various Indian government initiatives are giving credibility to the claim that India seeks to be a global manufacturing partner. The government is promoting legislation to promote investment. This includes:
Make in India Initiative: Designed to incent companies to develop, manufacture, and assemble products in India, with a focus on encouraging dedicated manufacturing investment.
Industrial Corridor Development: Focused on infrastructure and smart cities development in key cities.
Modified Semiconductor India Program: Promotes the development of the semiconductor industry specifically. Several deals have fallen through and the government is looking at relaunching the program.
These initiatives are a step forward to make India more competitive against China; however, India is stuck in the past with their imposition of tariffs on imported components. Designed to protect domestic production, the tariffs often hit components that have no domestic equivalent. India tariffs are also high in comparison to Asian competitors, such as Thailand and Vietnam. India has a lot to offer the world in the area of manufacturing, but if it’s serious about becoming an alternative to China, it must reform its tax code to facilitate the importation of critical manufacturing components.
