With a trade war underway between US and China that’s affecting the manufacturers in the neighbouring land, India plans to cash in on the windfall by offering attractive investment incentives to companies considering moving away from China given the high tariffs imposed by the Trump administration.
Financial incentives like preferential tax rates and the tax holiday similar to those offered by Vietnam are being considered to lure companies to set up their operations in India, according to a person familiar with the development who spoke to Mint. While the discussions are still in a private stage, industries such as electric vehicles, consumer goods, electronics, footwear and toys have been identified for incentives, according to a ministry document seen by Bloomberg.
With India set to potentially gain about 3.5% in additional exports due to the trade war to the tune of $10 billion, according to a United Nations Conference on Trade and Development released earlier this year, the government is taking steps to tap in on the opportunity which could also boost India’s export and manufacturing sectors.
Other measures being considered include setting up affordable industrial zones across India’s coastline and giving preference to local manufacturers in government procurement as an incentive to win over companies looking for an alternative production base.
The plan, once released, is widely expected to help grow India’s manufacturing base as part of Prime Minister Narendra Modi’s flagship ‘Make in India’ initiative which has a stated goal to boost manufacturing to 25% of the economy by 2020. This will also help India move closer to closing the huge trade deficit with China, its largest commercial partner.
Chinese investments can flow into sectors such as smartphones and components manufacturing, bed linen and kitchenware and other clothing, 95% of which are currently imported from China, according to a sector-wise analysis by the industry department, which oversees the foreign direct investment policy.