. Many think that in the aftermath of the pandemic, several manufacturing companies operating from China will relocate their businesses to other destinations, including India. Many American, Japanese, and South Korean companies based in China have initiated discussions with the Indian government to relocate their plants to India. Companies are expected to exit China due to three primary reasons. The first is the realisation that relying heavily on China for building capacities and sourcing manufacturing goods is not an ideal business strategy due to supply chain disruptions in the country caused by COVID-19.
India lags far behind China in manufacturing prowess. China ranks first in contribution to world manufacturing output, while India ranks sixth. Against India’s target of pulling up the share of manufacturing in Gross Domestic Product (GDP) to 25% by 2022, its share stood at 15% in 2018, only half of China’s figure. Industry value added grew at an average annual rate of 10.68% since China opened up its economy in 1978.
Since India follows a federal government system, a lasting solution to these constraints cannot be possible without the active participation of State governments and effective policy coordination between the Centre and the States. Currently, manufacturing growth in India has been powered majorly by Maharashtra, Gujarat, Tamil Nadu, Karnataka and Uttar Pradesh. An important requirement for the development of the manufacturing sector is the availability of land area. This could be one of the reasons why manufacturing activity is mainly concentrated in these five States which cover a substantial portion of India’s geographical area. However, what is of concern is that some States that also have large land area contribute disproportionately little in manufacturing GSDP. These include Andhra Pradesh, Bihar, Chhattisgarh, Madhya Pradesh, Odisha, Rajasthan, Telangana, and West Bengal.
The reasons for less manufacturing activity in these States have to be carefully examined, and based on this, State-specific industrialisation strategies need to be devised and implemented in a mission mode with active hand-holding by the Central government. Strong and carefully designed policy actions on the part of individual States would improve India’s overall investment climate, thereby boosting investments, jobs, and economic growth. In addition to its initiatives aimed at attracting manufacturing companies looking to relocate their plants to India from China, the Centre has urged the States to evolve their plans. However, such a strategy would be more effective if the policy actions of the Centre and the States are well coordinated.