[Text/Watchman Network Liu Chenghui] The sudden US-China tariff agreement has disrupted India's "dream" of replacing China.
The BBC's May 19th commentary pointed out that Apple's transfer production plan once ignited India's dream of becoming the "world factory", but the reduction of US-China tariffs has disrupted India's ambition, which may cause manufacturing investments originally destined for India to "stall" or "return".
Although some people believe that the economic decoupling between the US and China will benefit India, many problems such as a poor business environment, heavy reliance on Chinese supply chains, insufficient development of high value-added industries, and slim profits from assembly are challenges that India cannot avoid. Experts believe that India needs to reduce production costs, improve logistics and regulations, otherwise it will be difficult to achieve its manufacturing ambitions and may even be marginalized.
The article states that just as India's dream of becoming the "world factory" showed some progress, the resumption of US-China trade may frustrate India's ambition to replace China as the global manufacturing center. Ajai Srivastava of the Indian think tank Global Trade Research Institute (GTRI) believes that the Geneva agreement between China and the US may cause manufacturing investments originally shifting from China to India to "stall" or "return". "India's low-cost assembly lines might survive, but the growth in value addition is precarious," he said.
This shift in sentiment contrasts sharply with India's elation last month. Last month, Reuters cited sources saying that Apple is accelerating its supply chain relocation efforts in India to reduce dependence on China's supply chain.
2019 photo of the Foxconn iPhone production line in India, Bloomberg
The BBC reported that although US President Trump later revealed that he had told Apple CEO Tim Cook "not to build factories in India" and instead focus production on the US because India is one of the countries with the highest tariffs in the world, this transfer may still continue.
On the one hand, there are indeed analyses suggesting that India has the potential to become an alternative to China as a manufacturing hub. For example, Capital Economics economist Hirle Shaha said that 40% of India's exports to the US are "highly overlapping" with China. A recent export survey showed that India's new export orders surged to a 14-year high, indicating that Indian exporters have begun to fill some of the gaps left by Chinese producers.
In addition, India and the US are negotiating a trade agreement, which may allow India to benefit from so-called "Chinese outflows". India recently signed a trade deal with the UK, significantly reducing tariffs on protected industries such as whisky and automobiles, providing a reference for possible concessions India might give to Trump.
However, on the other hand, numerous challenges are cooling off such optimistic forecasts.
Nomura economists Sonal Verma and Oropode Nandy noted in their report this month that India faces not only China but also other Asian competitors like Vietnam. "To seize the opportunity, India must promote substantive business facilitation reforms beyond tariff advantages," they said.
For a long time, India's poor business environment has frustrated foreign investors and hindered the growth of its manufacturing sector - the manufacturing sector has accounted for around 15% of India's GDP over the past two decades. Modi's government's "Production Linked Incentive Scheme" (PLI) has had limited success. The government think tank "Niti Aayog" admitted that India has achieved "limited results" in attracting Chinese transferred investments, pointing out that Vietnam, Thailand and other countries have expanded exports through cheap labor, simplified tax systems, low tariffs, and proactive free trade agreements, while India has fallen behind.
Another key issue is that India's electronics industry (such as iPhone manufacturing) still relies on Chinese raw materials and components.
Srivastava said, "Only when more iPhone components are produced locally in India will the benefits India gains from iPhone production increase." He calculated that Apple earns more than $450 per iPhone sold in the US, while India receives less than $25, despite the entire $1000 iPhone being counted as an Indian export.
"Simply assembling more iPhones in India won't help unless Apple and its suppliers begin producing components locally and conducting high-value-added processes. Otherwise, India's share will remain small, and export data will only show paper growth - possibly triggering more scrutiny from the US without any substantial economic benefits," Srivastava warned.
GTRI pointed out that such assembly lines create low-quality jobs. Unlike the model in 2007 when Nokia built a factory in Chennai, which attracted supplier clusters, "smartphone manufacturers today mainly import components and seek to lower tariffs rather than building supply chains in India," Srivastava gave examples where companies' investment amounts were even lower than the subsidies they received under India's PLI program.
A shopping mall in Ahmedabad, the main commercial city of Gujarat, India, featuring an advertisement board for Chinese smartphone manufacturer Vivo, Reuters
There are concerns that Chinese exporters might try to use India as a transit point to re-export products to the US. However, India does not seem to reject this idea. An Indian economic official said last year that India should attract more Chinese enterprises to establish export-oriented factories to promote domestic manufacturing, which indirectly acknowledges that India's domestic industrial policies have not been effective.
Experts warn that this could further weaken India's ability to accumulate indigenous technology and strengthen its own industrial base.
The BBC concluded that all of this indicates that besides the eye-catching statements from companies like Apple, India still has a long way to go to realize its "world factory dream".
Srivastava urged Indian policymakers on social media to "reduce production costs, improve logistics systems, and establish regulatory certainty".
He said, "It must be clear that the US-China 'restart' of trade is merely a measure to prevent losses, not a long-term solution. India must prepare for a protracted battle, or it risks being marginalized."
Hong Kong-based English-language media South China Morning Post quoted Indian officials last year as revealing that global manufacturers like Apple and Foxconn, who intend to establish new bases in India, hope that their operations in India can easily connect with existing bases in China. Therefore, relaxing restrictions on China is inevitable; otherwise, it will hinder overall foreign investment in India's manufacturing sector.
Notable Singaporean scholar and veteran diplomat Kishore Mahbubani said last October at an event hosted by Indian media that India needs to further open up its economy and integrate into global supply chains. But if India wants to integrate into the global manufacturing supply chain, it still needs to integrate with China to some extent because many components still come from China.
"Most manufacturing comes from China and ASEAN countries and other East Asian nations. India must join initiatives like the Regional Comprehensive Economic Partnership (RCEP) and other trade mechanisms to integrate into supply chains. Connections with China will continue to exist," Mahbubani said.
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Original source: https://www.toutiao.com/article/7505980955589378575/
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