Covid-19 Impact: India Looks To Lure More Than 1000 US Firms Out Of China

India is seeking to attract US businesses, including medical devices giant Abbott Laboratories, to relocate from China as US steps up efforts to blame Beijing for its role in the coronavirus pandemic.

The government in April reached out to more than 1,000 companies in the US and through overseas missions to offer incentives for manufacturers seeking to move out of China, according to Indian officials who asked not to be identified.

India is prioritising medical equipment suppliers, food processing units, textiles, leather and auto parts makers among more than 550 products covered in the discussions, they said.

US President Donald Trump’s move to blame China for its handling of the Covid-19 outbreak is expected to worsen global trade ties as companies and governments move resources out of the world’s second-largest economy to diversify supply chains. Japan has earmarked $2.2 billion to help shift factories from its neighbour, while European Union members plan to cut dependence on Chinese suppliers.

For Prime Minister Narendra Modi, a surge in investment would help shore up an economy battered by an eight-week lockdown to control the outbreak, and help him make up ground hitting a target to grow its manufacturing sector to 25 per cent of gross domestic product by 2022 from 15 per cent. The need to create employment is now even more urgent after the pandemic left 122 million people jobless.

It could also present India with a chance to finally push through long-stalled reforms on land, labour and taxes that have hindered investment for years.

“There are opportunities for India to try to gain a place in global supply chains, but this will require serious investments in infrastructure and governance,” said Paul Staniland, an associate professor at the University of Chicago who writes about India’s politics and foreign policy. “India faces tough competition from elsewhere in South and Southeast Asia.”

Officials have told firms that India is more economical in terms of securing land and affordable skilled labour than if they moved back to the US or Japan, even if overall costs are still higher than China. They have also offered an assurance that India will consider specific requests on changes to labour laws, which have proved a major stumbling block for companies, and said the government is considering a request from e-commerce companies to postpone a tax on digital transactions introduced in this year’s Budget.

India’s trade ministry has sought detailed feedback from US companies on changes needed to make the country’s tax and labour laws more favourable to companies, said one of the officials. The government is working with states to ensure long-term solutions, the official added, including developing land banks to ensure a quick start for units.

India expects to win over US companies involved in health care products and devices, and is in talks with Medtronic and Abbott Laboratories on relocating their units to the country, an official said. Medtronic spokesman and Abbott spokeswoman didn’t immediately respond to emails seeking comments.

Both Medtronic and Abbott have a presence in India, which may make it easier for them to move their China supply chains to the country, according to an official. They’re based out of financial centre Mumbai and already work with large hospital groups. Trade ministry spokesman didn’t respond to an email seeking comment on the effort to lure US companies.

The push by Modi’s government comes as India tries to regain lost ground after many companies chose countries like Vietnam over India as an alternative destination when Trump started his trade war with China. Modi has tried to shore up US investments and improve ties through corporation tax cuts, two massive public rallies with Trump in Houston and India, and a $3 billion defence deal.

Secretary of State Michael Pompeo last month said the US was working with India, Australia, Japan, New Zealand, South Korea and Vietnam on how to “restructure these supply chains to prevent something like this from ever happening again”. The administration was “turbocharging” an initiative to remove global supply chains from China, Reuters reported this week, with one official saying it’s pushing for an “Economic Prosperity Network” of trusted partners.

“My read is that the network, if it pans out, will look to India and Vietnam to replace China in the global supply chain network,” said Derek Grossman, researcher at the Washington-based RAND Corporation who held positions in the US Intelligence Community for more than a decade. “This would be a rough fit in terms of replacing China’s immense manufacturing capabilities, but perhaps the US has high hopes that India and Vietnam can quickly ramp up to at least equal Chinese capacity.”

“There’s abundant capital in the US that’s looking for geographies outside, and we can see India responding,” said Mukesh Aghi, president of the US-India Strategic and Partnership Forum, a Washington-based group that advocates for policies that further business ties between the countries. “Companies realise that while large supply chains in China may have been economical, there’s no point in keeping all your eggs in one basket.” – Business Standard