India’s ambition to develop a robust computer and electronics manufacturing industry requires a rapid shift in focus. Rather than solely targeting the domestic market, India must aim to become regionally competitive and export-oriented. It’s essential to recognize that Vietnam, not China, poses the biggest competition.
Recent reminders of this imperative include a US appeal for India to enhance its business environment to attract more foreign direct investment. US Ambassador to India Eric Garcetti emphasized the importance of simplifying and making the business environment more transparent during a speech to the Indo-American Chamber of Commerce on Jan 30. He specifically highlighted the need for reducing import duties, stating that taxing inputs ultimately hinders market expansion rather than protecting it.
Following this appeal, the Indian government promptly reduced tariffs on various imported components, such as battery covers and mechanical parts, from 15 percent to 10 percent. While this may appear as a response to external pressure, it could also be coincidental or possibly anticipated by Washington.
Various nations, including the US, Japan, and Australia, all members of the Quad security grouping, are keen for India’s industrial growth as they seek to establish a viable alternative to China. However, India must view the advice to open up its markets as genuine rather than solely motivated by self-interest.
Despite receiving substantial overseas investment, India faces competition from other countries like Vietnam, which recently attracted investment from Foxconn Technology Group. This underscores the need for India to adopt a more outward-looking approach to manufacturing.
While many nations offer incentives to attract investors, India’s higher import taxes make it less competitive in the export market. The “Make In India” policy, initially successful in attracting investment for domestic consumption, is insufficient for sustainable growth. India needs to emulate China’s export-oriented strategy to thrive in the global electronics supply chain.
Research indicates that India’s tariffs are higher than those of its regional competitors like China, Mexico, Thailand, and Vietnam, further highlighting the need for reform.
Although Vietnam faces its own challenges, including complex work permit procedures and consumption taxes, India must acknowledge that it competes for investment dollars in export manufacturing.
By recognizing its shortcomings compared to regional rivals like Vietnam, India can prioritize reforms to enhance its business environment and attract foreign investment. Eliminating tariffs would send a clear signal to investors that India is ready for business.
