Can India Overtake Vietnam as Asia’s Manufacturing Hub?

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India has set its sights on becoming the leading manufacturing destination in Asia, as companies seek alternatives to China. However, to achieve this goal, India must overcome certain challenges, including high import taxes and inefficient supply chains.

Vietnam’s Advantage

Vietnam has emerged as a formidable manufacturing alternative to China, boasting low labor costs and a track record in electronics manufacturing. Its exports in 2023 reached .99 billion, far exceeding India’s .65 billion.

Vietnamese Prime Minister Pham Minh Chinh has taken steps to foster a business-friendly environment and attract foreign investors.

India’s Challenges

India, despite its strong relationship with the United States, faces challenges in competing with Vietnam. Chief among them is its high import tax on information and communication technology products, which stands at 10% compared to Vietnam’s average of 5%.

Furthermore, India’s infrastructure needs significant improvement. Lengthy shipment and delivery times hamper manufacturers’ ability to meet production goals.

Workers at the Lava mobile phone manufacturing facility in Noida, India.

Fiscal and Infrastructure Reforms

To boost its manufacturing prowess, India is planning to lower import duties and streamline regulations in specific sectors, such as mobile phone components. The government has also allocated funds for railway system upgrades to enhance logistics.

Vietnam’s China Connection

However, India faces a strategic challenge posed by Vietnam’s warming relations with China. President Xi Jinping’s recent visit to Vietnam solidified their partnership, raising concerns among supply chain managers and U.S. companies.

As India strives to surpass Vietnam as Asia’s manufacturing hub, it must navigate these challenges, address concerns over supply chain security, and continue implementing measures to improve its business environment.

Tech Giants Eye India

Despite the obstacles, several tech giants are expanding their operations in India. Apple plans to source batteries from Indian factories for the upcoming iPhone 16, while Google aims to start Pixel phone production in India by the second quarter.

ASEAN Cooperation

India’s aspiration to lead Asia’s manufacturing industry aligns with the Association of Southeast Asian Nations’ (ASEAN) goal of regional integration. Enhanced collaboration and economic ties between India and ASEAN countries could catalyze sustainable economic growth for the entire region.

Conclusion

India’s quest to become the top manufacturing destination in Asia faces significant challenges. By addressing concerns over import taxes, improving supply chain efficiency, and addressing concerns regarding political alignment, India can position itself as a competitive and attractive alternative to China in the global manufacturing landscape.