India set to overtake China as the worlds lead supply chain. The Coronavirus had a crippling effect on China
COVID-19 has exposed the vulnerabilities in having a China-centric global supply chain and as the world battles to contain the contagion, efforts are underway to de-risk the supply chain by exploring available alternates and India is seemingly right at the centre of reckoning.
Thousands of foreign companies are considering moving their manufacturing base from China to India. About 300 of these companies from sectors such as mobiles, electronics, medical devices, textiles and synthetic fabric, are actively pursuing plans of setting up manufacturing in India. A majority of the nations such as the US, Japan, South Korea rely on China currently; however, they are contemplating making the switch after China’s debacle in managing the deadly virus outbreak.
Countries are insisting on their corporations to either relocate production units or set up alternate units outside China. Japan has announced USD 2 billion financial assistance for its companies to shift production out of China and other countries are speculated to follow suit.
Uttar Pradesh a state in northern India is planning to offer incentives to attract manufacturers who are looking to shift base from China, a trend triggered by the US-China trade war but one which seems to have intensified with supply chain disruptions originating from China owing to the Covid-19 pandemic.
In a major push to domestic manufacturing, the Centre had in September last year slashed corporate tax to 25.17 percent. For new manufacturers, the applicable tax was brought down to 17 percent making it the lowest in South East Asia. Together with reduced tax rate and the roll-out of goods and services tax (GST), India hopes to attract sizeable foreign investment in the manufacturing sector.
The trade war between US and China, Corporate Tax Cut by India and Improvement in Ease of Doing Business in India, already positioned India as an attractive investment destination. India is certainly one of the most favoured investment destination and every company in the world would want to take advantage of the new economy that’s shaping under Modi 2.0.
The recent cut in the corporate tax rate for existing companies to 22 percent from 30 percent, and to 15 percent from 25 percent for new manufacturing firms incorporated after October 1, 2019, and starting operations before March 31, 2023 is a bold move by the Government of India.
This move has made India a very attractive destination for foreign investment. India’s corporate tax rates have become very competitive compared to those of other emerging market economies in ASEAN and other parts of Asia.
India is giving a 15 percent tax rate for any company that plans to make new investments in the country. The economy is reeling from the COVID-19 slowdown; it is a bold reform that will enable India to resume its growth trajectory on the back anticipated increase in foreign direct investment. The cut in corporate tax rate has coincided with the improvement India has seen in its ease of doing business, India’s rank in the World Bank’s Ease of Doing Business 2020 index has vaulted 14 places to 63rd among 190 economies.
When it comes to making Go-No Go decision on new investment, it becomes important to do in-depth analysis beyond the headline indicators, this becomes more important when a company is entering in a market where state-specific variables can make the successful outcome a difficult task.
With over 29 states and 7 union territories, shortlisting investment location is not an easy task and organizations such as Research and Marketing are positioning themselves to help corporations make that leap to India.
They aim to enable companies to make an informed decision by understanding the attractiveness and risks associated with each state in India, especially when it comes to making the right investment decision.
They provide reports with competitive benchmarking of leading states on parameters like resource attractiveness, policy attractiveness, political attractiveness, environmental attractiveness, infrastructure attractiveness, industry attractiveness and based on all parameters shortlist most attractive investment location /cluster in a given state.
With the ongoing trade wars between China and the Trump administration, India seems to be the logic alternative for foreign investments. Given the current escalation of violence between China and India’s military, investors may want to reconsider their move to a region on the break of war.