Is India the new China?

The Indian market is attracting increasing attention from US companies and major European markets in search of greater trade stability and diversification of their supply chains. India and the European Union are aiming to conclude a free trade agreement in the short term. The Asian market has already signed trade agreements with Australia and the United Arab Emirates, and Canada and the United Kingdom are also in the pipeline.  

The quantity and quality of investment that the country is attracting suggests that in many ways India will become the next 'factory of the world'. In the context of current geopolitical tensions, India has the advantage that China's share of its manufactured goods is less than 5 per cent: unlike many Southeast Asian countries, it is not part of a China-centric supply chain. 

As a trading partner, India offers growing structural and demographic attractions. Its population of 1.4 billion ensures a skilled, particularly technology-oriented workforce, relatively low costs and an expanding domestic market. The country has manufacturing capabilities and developing logistics capabilities to secure supply chains. Among India's negative notes are its protectionist record, which may make it less competitive in attracting foreign investment, some difficulties in first and last mile logistics connectivity, excessive bureaucracy and slowness in resolving legal disputes or enforcing contracts.   

The government has launched the Make in India initiative, designed to boost domestic manufacturing, facilitate investment, encourage innovation, protect intellectual property and build infrastructure. In this framework, the Production-Linked Incentive Scheme offers incentives to companies that register sales growth for five years from 2020. Pharmaceuticals, food, telecommunications, home appliances, automotive and components sectors may be major players in the future as they are covered by the scheme. 

"To increase manufacturing in India on a large scale and maintain quality, better infrastructure and skilled labour are needed. To attract all these factories and other component companies to invest in India, it is important to ensure that policies are very strong. There are still gaps that need to be addressed and it will take time to replace China, which has a huge head start," explains Atradius India Chief Risk Officer Meghna Nair.