Contrary to popular perception, a recent Bloomberg Report suggests that China may not be India's foremost manufacturing rival. Instead, the report underscores the need for India to shift its focus towards regional competitiveness and export-driven strategies in the computer and electronics manufacturing sector.
Recent directives from the United States have emphasized the necessity for India to pivot its strategy away from a predominantly domestic market focus towards fostering regional competitiveness and prioritizing exports. Surprisingly, it's Vietnam, not China, that poses the most significant challenge in this domain.
US Ambassador to India, Eric Garcetti, has reiterated the urgency of this shift, emphasizing the importance of creating a transparent and conducive business environment to attract foreign direct investment (FDI). He highlights the necessity of reducing import duties, as high tariffs impede competitiveness and restrict market access. Garcetti notes that taxing inputs effectively taxes outputs, ultimately limiting market potential.
While some may interpret the Indian government's recent reduction in tariffs on certain imported components as a response to external pressure, it's crucial to contextualize these actions within the broader global landscape. Nations like the US, Japan, and Australia advocate for India's industrial advancement not only to serve their interests but also to establish a credible alternative to China.
Despite India's considerable foreign investment appeal, announcements such as Foxconn's plan to invest $100 million in a new plant in Vietnam underscore the intense competition India faces in attracting manufacturing investments. Countries like Mexico, Thailand, Indonesia, and the Czech Republic also vie for global computer and electronics manufacturing funding.
India's strategy of imposing higher import taxes to promote local manufacturing paradoxically undermines its export competitiveness. The "Make In India" initiative, initially successful in attracting investment, now faces scrutiny as it primarily caters to the domestic market.
To thrive in the global electronics market, India must pivot its focus outward and address deficiencies in its business environment. Research indicates that India's tariff rates in the electronics sector surpass those of key competitors like China, Mexico, Thailand, and Vietnam.
While Vietnam offers a more favorable tariff regime, it also grapples with bureaucratic hurdles and weak intellectual property enforcement. Nevertheless, India must acknowledge that it competes for investment against regional counterparts and recognize that its current business environment falls short in comparison.
To signal readiness for foreign investment and facilitate export manufacturing, India must prioritize tariff elimination and streamline business regulations. Failure to do so risks further lagging behind in establishing a competitive electronics manufacturing industry.