Wednesday, November 25, 2020
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India: The next global manufacturing hub?

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In 2017, Elon Musk pitched both India and China to set up Tesla’s first electric car factory outside the United States. Even, in 2015, PM Narendra Modi visited the Tesla factory in California. However still, in the end, he chose to set up the Tesla Factory unit in Shanghai, China.


India had offered land near ports to set up a Tesla factory and an export base. While China offered that Tesla won’t have to share its profit or technology with them. Plus, it can build a factory in Shanghai’s Free trade zone.

See, China offering Tesla that it doesn’t need to share its profit was a huge departure from its existing laws. According to its present laws, when a foreign firm comes into China, it is required to come by entering into a Joint venture with a local firm. But to woo Elon, China bent the laws.


Elon Musk pointed out two reasons for choosing China over India. First was that the import duty in India is as high as 100% which would have made Tesla unaffordable. Another reason was that the electric vehicle market in India is minuscule in relation to China.


When I read that China relaxed such a stringent FDI law just to attract Tesla (let me tell you that China didn’t do this even for giant automobile makers like General Motors and Ford Motors when they were coming into China), I learnt that China would go to any extent to attract the firm, if it really wants that firm to come in China.

In short, to attract FDI, India would do anything within its laws. But China would do anything, even if it demands to bend the laws. India can also do that but unfortunately, it is slow and sometimes even unresponsive to do so.


India’s main Brahmastra to attract investment in the country is its cheap labour. However, it has to understand that this is also offered by many other Asian countries. Like Vietnam, Thailand, Taiwan, Indonesia, Malaysia, and the Philippines. So, it has to offer something more solid rather than drumming the beat of increased in meaningless Ease of Doing Business ranking (which only considers Delhi and Mumbai).


The recent changes in labour laws in some states like UP, MP, Punjab, and Gujarat, can help in attracting investment in the country. But again, this should be a permanent fix.

Most firms are afraid to come to India due to the current volatile business environment. They live in the fear that they don’t know which new law the government would pass tomorrow.

So, the only hope we can have from the government is that it will bring solid reforms soon to create a conducive business environment. Because we can no longer fix cancer by putting bandage around it.

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