In what would serve as a fruitful move, the government may be contemplating on incentivising companies moving out of China to enter India. The consideration is based on attracting foreign companies towards India, amid the USA’s trade war with China which has made many American companies in China to look for options to move their manufacturing bases out of China.
The incentives being considered are preferential tax rates and tax holiday like those provided by Vietnam to entice companies. Industries that could be eligible for incentives include electronics, consumer appliances , electric vehicles, footwear and toys. Such a decision could be aimed at reducing dependence on imports and boosting exports, and will serve as a major thrust for Make in India.
There are around 200 American companies that are seeking to move their manufacturing bases from China to India as confirmed by a US-based advocacy group, US-India Strategic and Partnership Forum, USISPF, before Lok Sabha Elections. The return of a strong and stable government has attracted the companies which have been seeking accelerated reforms and more conducive conditions to set up shop in India. The Modi government is expected to bank on this ripening situation under Finance Minister Nirmala Sitharaman.
The government has also identified more than 150 items where it feels Indian exporters can increase business with China. Some of these are prepared or preserved potatoes, synthetic staple fibers of polyesters and t-shirts, hydraulic power engines, and supercharger for motors. The motive is to sharpen the rise in exports to China after the tariff war pushed American exports out of China’s list of options. India’s exports in the last fiscal year, that is, FY 18-19 jumped 31 per cent to $17 billion narrowing the bilateral trade deficit with China by $10 billion. The spurt in exports was mainly on account of the rise in export of marine products, grapes, raw cotton and plastic raw materials. India was able to enter the export market with sugar, rice, pharmaceutical products, grapes, fish meal, pomegranates and others and has been working on enhancing exports of soybean meal, pomegranates, banana, pineapple, corn among others, all which have great demands in China.
The US-China trade war remains an opportunity for India to benefit from and it is time for the government to up the ante on economic competition by ushering in structural reforms, and primarily, labour reforms and making more favourable conditions for foreign companies to enter India and incentivizing them could potentially work wonders.