On Building a Robust Manufacturing Sector – India’s True Manufacturing Rival is Vietnam not China

Source: This post on Building a Robust Manufacturing Sector has been created based on the article “India’s true manufacturing rival is Vietnam, not China” published in “Business Standard” on 10^th February 2024.

UPSC Syllabus Topic: GS Paper 3 Indian Economy – Changes in industrial policy and their effects on industrial growth.

News: The article discusses the steps India should take in order to build a robust computer and electronics manufacturing industry. India’s True Manufacturing Rival is Vietnam not China

Background:

The US recently appealed India to make the business environment easier and transparent or risk losing foreign direct investment. Earlier, Japanese Foreign Minister also requested cooperation to improve the investment environment in India.

This is a reflection of the fact that many countries want India to succeed economically in order to build a viable alternative to China.

What Should India do to Build a Robust Computer and Electronics Manufacturing Industry?

1) Export-Driven instead of Focusing on the Domestic Market: Instead of concentrating on the domestic market, it should become regionally competitive and export-driven. A domestic market alone isn’t enough to sustain large and complicated electronics supply chains.

2) Recognising Competition: India should remember that it doesn’t hold a monopoly over business migration away from China. Countries, particularly Vietnam and others such as Mexico, Thailand, Indonesia and Czech Republic are also in competition in the computer and electronics sector.

3) Cutting Import Duties: For more than 85% of the tariff categories within electronics, India’s duties are higher than its competitors.
These high import duties lead to companies catering to local consumers but makes them less competitive in the export market. Hence, cutting import duties should be a priority.

4) Provide Other Incentives: These include tax breaks, dedicated free-trade or industrial zones, discounted utilities like water and electricity, free land and commitments to supply workers.

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What has The Govt done in This Regard?

The government recently reduced tariffs on a range of imported components, including battery covers, lenses, antennae and mechanical parts to 10% from 15%.

India should understand that it’s competing for investment to drive export manufacturing, and that its business environment doesn’t compare well with regional rivals like Vietnam.

Question for practice:

What steps should India take in order to to build a robust computer and electronics manufacturing industry?