Thanks to land and labour reforms, the PLI scheme and liberalised FDI policy, India is attracting global investments
The global value chains (GVCs) are being reshaped as a result of the Covid-19 outbreak. Multinational corporations (MNCs) are attempting to develop alternative supply chains to mitigate future production shocks. In this environment, India has emerged as an appealing alternative to the traditional GVCs. When growing labour costs in China produced a similar situation in 2007-08, Vietnam emerged as the most attractive site for corporations looking to build factories.
This time, though, India appears to be well-equipped to attract corporations that are revamping their GVCs. The structural reforms done by various State governments, the Central Government’s sectoral incentive schemes, and India’s liberal FDI environment will all aid India’s effective integration into GVCs and, ultimately, industrialisation.
In the last two centuries, the rise of industrial sector in the global North (Europe and the US) led to new industrial towns and cities and laid the foundation for modern democracies in the industrialised world. Since then, industrialisation became synonymous with economic prosperity and growth. This growth model has evolved over three centuries, spreading globally. Allowing free flow of capital and housing a large pool of labour allowed countries to attract firms to establish factories in their geographies. Industrialisation model However, this model of industrialisation changed in late 1980s. Focussing on specific product categories or components, countries were able to ultra-specialise their knowledge and actively participate in global trade, thanks to technology-led wide dispersion of processes. This meant that nations with the lowest labour costs would attract labour-intensive production processes (assembly), and countries with high-end research capabilities would attract designing/R&D-related value-chain activities. However, China’s meteoric rise during this period effectively stopped the rise of any country relying on cheap labour.
Covid-19 outbreak, rising labour costs in China and geopolitical considerations have now opened up a unique opportunity for India. The government has taken steps to attract companies into its geography. The legacy concerns linked with labour and land were among the most significant hurdles to the manufacturing sector’s expansion.
Most State governments recently reduced these two significant barriers to investment. Madhya Pradesh, Uttar Pradesh and Gujarat have announced major reforms to their labour laws. Reforming this crucial production element will send favourable signals to investors all across the world for managing labour.
Furthermore, the government is establishing a land pool with a total area of 461,589 hectares. This land pool is available for investment, lowering the transaction costs for investors who find land acquisition to be a nightmare. These two changes are long-standing roadblocks that have stifled industry and deterred foreign investors. A comprehensive makeover of these two primary production elements has created several investment opportunities for international investors in India.
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