India has the second largest population in the world with median age of 30. Labour cost in India is almost half compared to China. These are ideal factors required for any Industry. Then why aren’t the manufacturers coming to India?
56 companies relocated their production out of china owing to the trade war between China and USA, between April 2018 and August 2019. Out of these 56 companies, just 3 companies came to India.
There are various factors that stop India from becoming manufacturing giant.
Unfavourable tax policies and lack of incentives
The tax policies and rates are unfriendly for the manufactures. The tax rates are high in India. It is economical to import rather than producing goods in India due to high costs and tax rates.
Also, there are few incentives provided by the government on export of goods and growth sectors.
Dearth of manufacturing culture
Manufacturing in India is not easy. Land permit, licences, pollution certificates, etc are a weary process in India. Many government officials involved at different stages of each process. Therefore, making the process very cumbersome and difficult for ease of business.
On the other hand, in manufacturing countries such as Vietnam, where 11 of the 56 relocated companies went, there is only one person involved from the government’s side who handles all the issues.
Lack of infrastructure and transport facilities
India lacks the infrastructure and transport facilities required by manufacturing companies. According to some studies, India’s GDP reduces by 1-2% every year because of its poor infrastructure.
Furthermore, poor transport facilities reduce manufacturers profitability significantly.
Unskilled workforce is the chunk in India’s armour. There is lack of quality education in India. Most of the workers, engineers lack skills required for their job. Manufacturers in India face a dilemma hiring skilled workers.
Government should take initiative to skill its workforce. In addition, It should make more efforts and launch campaigns similar to skill India successful.
However, India recently jumped 23 places on ease of doing business index and ranked 77 in the world.