A recent report by NITI Aayog, India’s premier policy think tank, reveals that the nation has not fully capitalized on the ‘China Plus One’ strategy, a global business approach where companies diversify their manufacturing operations beyond China to mitigate risks and reduce dependency. The report highlights that countries like Vietnam, Thailand, Cambodia, and Malaysia have been more successful in attracting businesses seeking alternative manufacturing hubs.
Understanding the ‘China Plus One’ Strategy
The ‘China Plus One’ strategy emerged as companies sought to diversify their manufacturing bases to avoid over-reliance on China. Factors such as rising labor costs in China, geopolitical tensions, and supply chain disruptions have prompted businesses to explore additional locations for their operations. This strategy aims to enhance supply chain resilience and tap into emerging markets with favorable manufacturing conditions.
India’s Position in the ‘China Plus One’ Landscape
Despite its vast market and growing economy, India has faced challenges in becoming a preferred destination for companies implementing the ‘China Plus One’ strategy. The NITI Aayog report indicates that nations like Vietnam, Thailand, Cambodia, and Malaysia have outpaced India in attracting these investments. These countries offer advantages such as cheaper labor, simplified tax systems, lower tariffs, and proactive trade policies, including Free Trade Agreements (FTAs), which have given them a competitive edge over India.
Challenges Hindering India’s Competitiveness
Several factors have impeded India’s ability to fully leverage the ‘China Plus One’ opportunity:
- Regulatory Hurdles: Complex regulations and bureaucratic processes have deterred potential investors, making it challenging for businesses to establish and operate efficiently.
- High Tariffs: Elevated tariff rates have made Indian products less competitive in the global market, discouraging companies from setting up manufacturing units.
- Logistical Inefficiencies: Inadequate infrastructure and logistical challenges have increased operational costs, making India a less attractive option compared to its Southeast Asian counterparts.
Recommendations for Improvement
To enhance its appeal as a manufacturing hub and capitalize on the ‘China Plus One’ strategy, India needs to undertake several measures:
- Ease of Doing Business: Streamlining regulations and reducing bureaucratic red tape can create a more business-friendly environment, encouraging foreign investments.
- Trade Agreements: Engaging in comprehensive trade agreements can open new markets and provide a competitive edge to Indian products. NITI Aayog CEO B.V.R. Subrahmanyam has advocated for India’s inclusion in trade blocs like the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) to boost the MSME sector, which contributes 40% of India’s exports.
- Infrastructure Development: Investing in infrastructure can reduce logistical costs and improve supply chain efficiency, making India a more viable option for manufacturing.
Opportunities Amid Geopolitical Shifts
The ongoing U.S.-China trade tensions have led companies to seek alternative manufacturing destinations. India has the potential to attract these businesses by offering a stable and conducive environment. However, the NITI Aayog report cautions that India must be vigilant against the risk of China dumping goods into its market, which could harm domestic industries.
Conclusion
While India possesses the potential to become a significant player in the global manufacturing landscape, it has yet to fully capitalize on the ‘China Plus One’ strategy. Addressing regulatory, infrastructural, and policy challenges is crucial for India to position itself as a favorable alternative to China and attract global investments. Proactive measures in these areas can enable India to harness the opportunities presented by shifting global supply chains and enhance its role in the international market
