India has undergone a significant socio-economic transformation over the past decade. Building the physical infrastructure and environment for industrial development has been India’s core agenda, which has resulted in demand generation, higher investments, better connectivity and transparency in the industrial sectors.
These developmental efforts have, of course, been challenged by the Covid-19 pandemic. India has responded with a relief package valued at 10% of the national GDP delivering INR20tn ($265bn), combined with significant easing of restrictions on foreign direct investment (FDI).
The introduction of the ‘Self-Reliant India’ initiative also marks the commitment towards promoting domestic production and consumption with global supply chains, while ensuring this is not about being self-contained or being closed to the world.
And despite intermittent disruptions, including the pandemic, India has continued its steady march towards establishing a sustainable industrial environment in the new decade, by strengthening its ecosystem bit by bit. Developing the nation into the manufacturing hotspot in South Asia will require continuous deliberation, strategic planning and precise implementation.
From 2014 to 2020, the government introduced a series of reforms to promote economic growth and, at the same time, the country has achieved massive improvement in the World Bank's 'Ease of Doing Business' survey ranking. Since the 2014 survey it has jumped 79 places to reach 63rd place this year, with India now ranked among the ten most improving economies.
This is attributed to several policy measures, including set-up measures, cross-border trading and digitisation of processes. Taxation policy initiatives like e-assessments, corporate tax rate reductions, and the abolition of the Dividend Distribution Tax have also made it easier to operate in India.
After the 2019 general election, continued economic revitalisation initiatives re-emphasised previously introduced initiatives like Make in India, Digital India, and Start-up India to augment the growth of a business through accelerated investments.
The positive outcome was borne out by statistics. FDI equity inflows rose to $50bn in the fiscal year ending in March 2020, compared to $44bn in the previous year. This rise in foreign equity inflows can be attributed to a host of structural reforms and strategic initiatives – the liberalisation of foreign direct investment in certain sectors; the Real Estate Regulatory Authority (RERA) Act; establishing the Insolvency and Bankruptcy Code (IBC); demonetisation; introducing the Goods and Service Tax (GST); recapitalisation and consolidation of state-owned banks.
In addition to attractive FDI norms, the Indian government is encouraging foreign investment through incentives such as capital subsidies and tariff reductions for new setups.
The significant skill development of the Indian workforce and reduction in manufacturing costs realised by establishing industrial parks and clusters, further amplifies these benefits.
Topping it off is India’s large English-speaking populace, which provides a base of competent professionals and labour as compared to other south-east Asian countries.
To further ease the local business ecosystem, efforts are being made to rationalise and simplify state-level labour laws.
Proactive and decisive
India has been internationally recognised for the swift responses taken to prepare for and address the pandemic. The country announced the world’s biggest lockdown, early in the domestic transmission cycle, and extended it to two months to prepare and protect citizens.
These comprehensive steps are expected to aid the fight against Covid-19 by allowing a nation with limited resources to mobilise public co-operation and implement innovation.
For instance, at the beginning of the pandemic, India was importing PPE for domestic demand, but within a few months, manufacturing was scaled up to produce an estimated surplus of 500,000 kits per month, which are now being exported.
The response to the pandemic is a reflection of the proactive and decisive stance adopted by Indian policy makers, addressing the need of the hour to facilitate entrepreneurship.
Diversify to differentiate
With a clear policy impetus on enhancing manufacturing in India, companies all over the world are considering India as a sustainable investment destination to diversify and strengthen their supply chain, and hedge against supply-side shocks. In the medium-to-long term, it is clear that businesses manufacturing in India will have an advantage, with the large and growing domestic demand, as well as export opportunities for other large economies.
We believe India is simply scratching the surface right now, and successive steps will be taken over the coming years to bolster India’s position as a preferred manufacturing destination benefitting from both economies of scale and adherence to international manufacturing standards.
Supported by the pro-business attitude of the government and the current, conducive environment, investment in India can be the catalyst for the long-term, global growth of a business.
As the Indian Government’s latest inward investment campaign puts it: 'Diversify to differentiate. Think India. Think Next!'
Manoj Gidwani is the vice president for global marketing at consultancy Nexdigm.