India lockdown
India is looking at the final stretch of its lockdown, and will need all the inward investment help it can get. Tapping US multinationals with a China base is a good place to start. Image Credit: Reuters

New Delhi: India is seeking to lure US businesses, including medical devices giant Abbott Laboratories, to relocate from China as President Donald Trump’s administration steps up efforts to blame Beijing for its role in the coronavirus pandemic.

The government in April reached out to more than 1,000 companies in the US and through overseas missions to offer incentives for manufacturers seeking to move out of China, according to Indian officials. India is prioritizing medical equipment suppliers, food processing units, textiles, leather and auto part makers among more than 550 products covered in the discussions.

Trump’s move to blame China for its handling of the COVID-19 outbreak is expected to worsen global trade ties as companies and governments move resources out of the world’s second-largest economy to diversify supply chains. Japan has earmarked $2.2 billion to help shift factories from its neighbor, while European Union members plan to cut dependence on Chinese suppliers.

India expects to win over US companies involved in healthcare products and devices, and is in talks with Medtronic Plc and Abbott Laboratories on relocating their units to the country, an official said.

Both Medtronic and Abbott have a presence in India, which may make it easier for them to move their China supply chains to the country. They’re based out of financial center Mumbai and already work with large Indian hospital groups.

Offering incentives, tax breaks

Officials have told companies that India is more economical in terms of securing land and affordable skilled labor than if they moved back to the US or Japan, even if overall costs are still higher than China. They have also offered an assurance that India will consider specific requests on changes to labor laws, which have proved a major stumbling block for companies, and said the government is considering a request from e-commerce companies to postpone a tax on digital transactions introduced in this year’s budget.

The push by Prime Minister Narendra Modi’s government comes as India tries to regain lost ground after many companies chose countries like Vietnam over India as an alternative destination when Trump started his trade war with China. Modi has tried to shore up US investments and improve ties through corporate tax cuts, two massive public rallies with Trump in Houston and India, and a $3 billion defense deal.

Build the network

Secretary of State Michael Pompeo last month said the US was working with India, Australia, Japan, New Zealand, South Korea and Vietnam on how to “restructure these supply chains to prevent something like this from ever happening again.” The administration was “turbocharging” an initiative to remove global supply chains from China, Reuters reported this week, with one official saying it’s pushing for an “Economic Prosperity Network” of trusted partners.

“My read is that the network, if it pans out, will look to India and Vietnam to replace China in the global supply chain network,” said Derek Grossman, researcher at the Washington-based RAND Corporation. “This would be a rough fit in terms of replacing China’s immense manufacturing capabilities, but perhaps the US has high hopes that India and Vietnam can quickly ramp up to at least equal Chinese capacity.”

Investment dependent

India in April approved 130 billion rupees ($1.7 billion) worth of investments to make more bulk drugs and medical devices, and to boost local manufacturing of drug intermediates and active pharmaceutical ingredients to cut dependence on imports from China.

For Modi, a surge in investment would help shore up an economy battered by an eight-week nationwide lockdown to control the outbreak, and help him make up ground hitting a target to grow its manufacturing sector to 25 per cent of gross domestic product by 2022 from 15 per cent. The need to create employment is now even more urgent after the pandemic left 122 million people jobless and forced India to shut down all major cities.

Back to reforms

It could also present India with a chance to finally push through long-stalled reforms on land, labor and taxes that have hindered investment for years. Modi’s second term has been marred by nationwide protests and slow growth since his party scored a landslide election victory a year ago, presenting a risk for companies planning to move.

“There are opportunities for India to try to gain a place in global supply chains, but this will require serious investments in infrastructure and governance,” said Paul Staniland, an associate professor at the University of Chicago who writes about India’s politics and foreign policy. “India faces tough competition from elsewhere in South and Southeast Asia.”

Be a guarantor

“India is a bigger market than Vietnam or Cambodia so it should be a bigger draw for investors looking to move operations out of China,” said Ajay Sahai, director general and chief executive officer of the Federation of Indian Exporters. “But apart from ensuring land, water and sewerage, the most important change India needs to make is to give a clear guarantee that the government will not introduce retrospective tax amendments.”

A beverage deal
London: UK's GlaxoSmithKline is selling its entire stake in Unilever's listed India unit for about $3.3 billion.
Glaxo and Horlicks Ltd. will together sell as many as 133.8 million shares in Hindustan Unilever Ltd. Prices will range between Rs1,850 to Rs1,950 a share, representing a discount of as much as 8 per cent to Wednesday's close.
GlaxoSmithKline received the stake as part of the payment for the sale of a portfolio of assets that was completed this month. In December 2018, Unilever said it would acquire the health food drinks brands of Glaxo in India and Bangladesh and other markets for 3.3 billion euros ($3.6 billion) in cash and shares in Hindustan Unilever.
As part of the transaction, Glaxo received a 5.7 per cent stake in the Indian unit.

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