Published: 5th Apr, 2024
Context
India wants to be the top manufacturer in Asia as companies shift away from China, but first it needs to lower taxes and improve supply chain efficiency if it wants to dethrone Vietnam.
Economies shifting away from China
- Side-lining China: The U.S. has pursued a “friendshoring” agenda as competition with China increases.
- The US administration has encouraged American companies to move electronics and technology manufacturing operations out of China and into friendlier countries, particularly Vietnam and India in Asia-Pacific.
- Interesting alternative: India and Vietnam are attractive manufacturing alternatives for foreign investors and companies, due in part to low labor costs.
Why Vietnam has an upper hand?
- Vietnam is still way ahead with 2023 exports totalling USD 96.99 billion, compared with India’s USD 75.65 billion
- Vietnam has been known for their ability to manufacture electronics. India is just getting into that game.
- While India’s relationship with the U.S. has warmed recently, Vietnam has had a trade and investment deal with Washington since 2007.
- Vietnam has a more simple proposition compared with India, which has “29 states and every state has a policy which may be different.”
What factors will move the needle” for India”?
- India needs to solve the following problems to be on par or even overtake Vietnam’s manufacturing strength:
- Lowering import taxes: India’s import taxes were intended to protect domestic manufacturers, but lowering those duties will be part of the government’s efforts to attract foreign firms to manufacture goods within the country.
- Improving supply chain efficiency: India’s infrastructure is still lacking, leading to lengthy shipment and road delivery times. Improving efficiency is the key.
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