Finance Minister Nirmala Sitharaman has announced that she will soon prepare a blueprint aimed at wooing companies that are looking to exit China in view of the ongoing trade war between the US and China. Sitharaman disclosed her plans to reporters in Washington after completing her engagements. She said, “I will go back and design in some way whereby I will identify those multinational corporations, American, European or British origin, who are moving out of China or who probably are even contemplating. I will make a blueprint with which I will approach them and put forward to them as to why India is a far more preferable destination.”
It is important to mention here that the Trump administration has been putting pressure on the American companies to move their manufacturing bases outside China amidst the ongoing trade war between the US and China. Recently, a fresh set of US tariffs were imposed on Chinese goods. At that time the President of the United States, Donald Trump had said that 13 per cent of companies would exit China “in the fairly near future”. Trump had told reporters at White House, “It’s a bad situation they (Chinese) have put themselves in. And I just saw — it came over the wires — that 13% of certain companies are going to be leaving China in the not-too-distant future. That’s a big thing.”
Finance Minister Nirmala Sitharaman said that since the MNCs exiting China are “definitely considering India as an option, it might be important for the government to now see and meet up with a lot of industry leaders and invite them to India.” It is clear from Finance Minister Sitharaman’s remarks that the Modi government understands fully well the kind of opportunity that the ongoing US-China trade tensions offer.
It is not out of context to mention here that the trade tensions are turning out to be a great opportunity for India. The American and even European and Japanese companies will have to look for new sources and avenues in the backdrop of the trade war. As the MNCs companies look beyond China in the face of the ongoing trade war, India is the most natural alternative given its encouraging economic growth rate in the recent past and also the fact that the size of India’s economy most closely resembling that of China, making it a perfect substitute.
Till now, Vietnam has been a major beneficiary of the ongoing trade tensions between the top two largest economies of the world. However, India is now looking to make the big move. India already took a step in the right direction when it announced a major corporate tax rate cut. The effective rate of taxation (including cess and surcharges) stood at 34.94% before this move was announced. After the announcement of the cuts, it got reduced to 25.17%. Similarly, the Modi government announced another major reform by allowing new manufacturing firms to pay taxes at 15% if they set up and start manufacturing by March 31, 2023. Earlier such firms were taxed at 25%. This move in particular is aimed at attracting companies fleeing China in the face of the ongoing tariff war between the US and China.
Finance Minister Nirmala Sitharaman who seems committed to the idea of ensuring that India makes full use of the ongoing trade war between the US and China also made it clear that opportunities in Vietnam are getting saturated as the country does not have enough manpower needed to fuel the expansion programmes for investment. She said, “So, given the fact that we’ve given concessional taxation approach to corporate incomes, corporate tax having been brought down and the problems that I’ve just mentioned about Vietnam, there’s a higher chance that those companies which are moving out those investments which want to get out to China will certainly look at India.”
It is clear that with MNCs moving their manufacturing bases out of China, major manufacturers will have to ultimately look towards India as the new manufacturing powerhouse of the world. Only India has the potential of matching the expansion needs triggered by the trade tensions between the US and China. It is a welcome development that the Modi government has already started thinking in the right direction with the Finance Minister disclosing her plans for wooing MNCs exiting China.