Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

China’s Loss May Become India’s Gain in Shifting Supply Chains

Published 08/16/2020, 06:00 PM
Updated 08/16/2020, 07:09 PM
© Reuters.  China’s Loss May Become India’s Gain in Shifting Supply Chains

© Reuters. China’s Loss May Become India’s Gain in Shifting Supply Chains

(Bloomberg) -- India’s latest set of incentives to entice businesses moving away from China seem to be working, with companies from Samsung Electronics (OTC:SSNLF) Co. to Apple Inc (NASDAQ:AAPL).’s assembly partners showing interest to invest in the South Asian nation.

Prime Minister Narendra Modi’s government in March announced incentives that make niche firms -- electronics manufacturers -- eligible for a payment of 4%-6% of their incremental sales over the next five years. The result: about two dozen companies pledged $1.5 billion of investments to set up mobile-phone factories in the country.

Besides Samsung (KS:005930), those that have shown interest are Hon Hai Precision Industry Co., known as Foxconn, Wistron Corp. and Pegatron Corp. India has also extended similar incentives to the pharmaceutical sector, and plans to cover more sectors, which may include automobiles, textiles, and food processing under the program.

While companies have been actively looking to diversify supply chains amid the U.S.-China trade tensions and the coronavirus outbreak, it hasn’t yet translated into big gains for India despite the nation making it cheaper for businesses to open shop. Vietnam remains the most favored destination, followed by Cambodia, Myanmar, Bangladesh and Thailand, according to a recent survey by Standard Chartered (OTC:SCBFF) Plc.

“There is a reasonable chance for India to gain in terms of incremental investment of supply chains within the country over the medium term,” said Kaushik Das, chief India economist at Deutsche Bank AG (NYSE:DB) in Mumbai. “These programs are aimed at increasing India’s manufacturing share in the gross domestic product.”

Economic Boost

The government expects the program for electronics alone could lead to $153 billion worth of manufactured goods over the next five years and create about one million jobs directly and indirectly.

This would bring an additional investment of $55 billion over five years, adding 0.5% to India’s economic output, according to analysts led by Neelkanth Mishra at Credit Suisse (SIX:CSGN) Group AG. This could shift an additional 10% of global smart-phone production to India in five years, most of it from China, they wrote in a report Aug. 10.

That complements Modi’s goal to grow the share of manufacturing in the economy to 25% from the current around 15% as part of his ‘Make in India’ program. His government has already lowered taxes on companies to among the lowest in Asia, seeking to attract new investments in an economy headed for its first contraction in more than four decades this year.

The latest output-linked incentive plan is a “big win for Make in India,” Amish Shah, an analyst at BofA Securities, said in a report to clients. He sees gains for industrials, cement, pharmaceuticals, metals and logistics, with long-term indirect benefits across many sectors.

©2020 Bloomberg L.P.

Latest comments

Good for India.
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.