India’s aversion to Chinese investments and how geopolitics impacts PLI

News: Many countries are competing for the share in investments coming out of China. India is facing heavy challenges from other countries.

Countries have been trying to attract companies leaving China for various reasons. Apple has started leaving China and other companies may follow. Many South-East countries such as Vietnam, Malaysia, Indonesia and Thailand are in the race of attracting companies such as Apple, moving out of China.

Vietnam has successfully attracted Samsung to shift its mobile business from China. It now accounts for half of the smart phone outputs of Samsung.

Similarly, it has urged Apple CEO Tim Cook to step up business in their country.

Apple produced around $1.67 billion worth of phones in 2021 in India.  India accounted for 3.1 per cent of Apple’s global manufacturing base in 2021, up from 1.3 per cent in 2020.

However, issues like Covid-19-related lockdowns are prompting Apple to push its suppliers to look elsewhere to expand production.

What are the challenges India is facing in attracting investments?

Unlike other countries India has an advantage, as factories of big Taiwanese vendors of Apple Inc — Foxconn, Wistron and now Pegatron — are already running in India.

Now, to take advantage of PLI scheme, these factories are looking at threefold increase over the previous year. However they are facing challenges in expanding their capacity in India.

First, Companies require a substantial ecosystem of suppliers within the country to reduce the cost, then only they prepare to expand their capacity. This case doesn’t look possible as Chinese suppliers dominate the mobile device supply chain globally for both mobile devices, laptops and tablets.

It is only possible if Chinese supplies setup their shops in India, bringing along their technology. However, due to changes in India’s Foreign Direct Investment policy after the India-China border clashes in 2020, Chinese companies have been excluded from automatic clearance route.

China based suppliers are also looking for diversification due to increasing labor cost in China and lockdown based restrictions. A large number of Chinese companies have setup their base in Vietnam, due to lesser restrictions, similar culture and low cost.

Second, Taiwan can be an alternative of China for technology and suppliers. However they are conservative, take time in technology-sharing or transfer and are more expensive.

Third, “Atmanirbhar” drive is also not successful in challenging dominance of Chinese players in all critical supply chain.

Fourth, Building a domestic supply base is the long-term solution, but it will take time.

Source: This post is created based on the article “India’s aversion to Chinese investments and how geopolitics impacts PLI” published in Business Standard on 30^th May 2022.