Tariffs: Will a US-China deal foil India’s factory ambitions?
As India seeks to establish itself as a global manufacturing hub, the recent US-China trade deal has raised questions about the country’s ability to maintain its growing momentum in the sector. The agreement, which includes reduced tariffs on goods traded between the two nations, has sparked concerns that India’s manufacturing ambitions could be undermined by the shift in trade dynamics.
India’s aspirations to replace China as a global manufacturing center have been bolstered by recent developments, including Apple’s decision to shift a significant portion of its iPhone production from China to India. However, the recent trade deal between the US and China has introduced uncertainty, with analysts suggesting that India’s manufacturing gains could be at risk.
Analysts like Ajay Srivastava of the Global Trade Research Institute (GTRI) have expressed concerns that the trade deal could lead to a slowdown in manufacturing investments that were previously moving from China to India. Srivastava noted that while India’s low-cost assembly lines may survive, the value-added growth in the manufacturing sector is at risk.
Despite these concerns, there are still positive signs for India’s manufacturing sector. The country has seen a surge in new export orders, with Indian manufacturers reporting a 14-year high in export activity. Additionally, economists like Shilan Shah of Capital Economics have pointed out that India’s exports to the US are similar to those of China, suggesting that the country could benefit from the trade shift.
India’s government has also been working to improve its business environment, with initiatives like the Production Linked Incentive (PLI) scheme aimed at boosting manufacturing. However, analysts have noted that India’s manufacturing growth has been limited, with its share of GDP remaining around 15% for two decades.
Another challenge for India is its reliance on China for raw materials and components used in electronics. This dependence could limit the country’s ability to fully capitalize on the shift in supply chains. Experts have warned that India’s earnings from making iPhones will only increase if more of the phone is produced locally, rather than just assembled in the country.
India’s manufacturing sector has also faced challenges in terms of job quality, with assembly lines creating low-paying jobs rather than high-value manufacturing positions. This has led to concerns that India’s manufacturing growth may not be sustainable in the long run.
Despite these challenges, there are still opportunities for India to benefit from the US-China trade deal. The country has signed trade pacts with other countries, including the UK, which could help it attract foreign investment and improve its manufacturing capabilities. However, experts caution that India needs to make significant reforms to its business environment to fully capitalize on the trade shift.
In conclusion, while the US-China trade deal has introduced some uncertainty, India’s manufacturing sector has shown promise. However, the country needs to address its challenges in order to fully realize its potential as a global manufacturing hub.