Indian Prime Minister Narendra Modi is planning business-friendly measures if he wins a third term this week, including introducing regulations to make it easier to hire and fire workers, according to two government officials familiar with the matter.
As part of his election promise to turn India into a global manufacturing hub, Mr. Modi wants to provide subsidies for domestic production modeled on a new package for semiconductor companies and electric vehicle makers, said the official, who spoke on condition of anonymity because of the same. not authorized to speak to the media.
He also plans to reduce import taxes on key inputs for locally made goods, which has increased the cost of Indian manufacturing, the official said.
The Prime Minister’s Office and the Minister of Labor and Finance did not respond Reuters‘ he asked.
Opinion polls project that the Bharatiya Janata Party (BJP) will win a majority when the election results are announced on June 4.
Increasing India’s share in global manufacturing
Mr. Modi’s re-election campaign was built in part on promises of continued economic development. They are making India an alternative to global companies with multiple supply chains from China.
India is the world’s fastest-growing major economy, but it has a booming technology sector and a struggling old economy that doesn’t provide enough jobs for others, said Josh Felman, former head of the International Monetary Fund’s India office. “What we can do now to provide jobs – good jobs for these people – is manufacturing,” Mr. Felman said.
India has successfully attracted suppliers to major US companies like Apple Inc and Alphabet Inc’s Google. However, less than 3% of global manufacturing takes place in the country, compared to 24% for China, World Bank data shows.
The government plans to increase India’s share of global manufacturing to 5% by 2030 and 10% by 2047, according to internal documents seen by Reuters. Didn’t give specifics.
Reuters said 15 people – including bureaucrats, representatives of major investors, the economy and trade unions – who identified three significant obstacles holding India back from the status of a manufacturing hub: restrictive labor laws, the challenge of acquiring land, and a rigidly inefficient tariff regime.
Basic problem
When Modi was the chief minister of his home state of Gujarat between 2001 and 2014, he dreamed of an investment zone in the Dholera region. Legislation creating the Dholera Special Investment Region (DSIR) was passed in 2009 and local authorities began acquiring land in 2013.
The plan, Mr Modi said during his 2011 visit to Chinese ports, was to develop the DSIR along the “Shanghai model”.
Since the 1980s, China has set up a special economic zone on the southeast coast that is considered the world’s factory floor.
Land reform was a precursor to China’s rise in manufacturing. Since the 1970s, Beijing has separated ownership from use rights, making it easier for investors to acquire industrial land, said Henry Gao, a China trade expert at the Singapore Management University (SMU). Beijing’s industrial zoning policy also makes it easier for industries to set up in areas with ready access to materials and facilities, he said.
As Prime Minister, Mr. Modi continued to emphasize the importance of industrial zones for India. In March, he described the facility being built at DSIR as central to creating India’s semi-conductor manufacturing hub. In January, the Tata Group announced plans to build India’s first semiconductor fabrication plant there. During a visit in March, Reuters also see construction activity for the upcoming cargo airport and promotional billboards created by real-estate developers. There are paved roads and waterfronts but no sign of busy businesses.
DSIR hopes to attract more manufacturing companies by granting leases of up to 99 years on government-owned land, said Rahul Gupta, head of Gujarat Industrial Development Corporation. Local officials say it will take more than a decade to acquire land and award infrastructure contracts, but Mr. Gupta predicts more activity in two to three years.
Outside the zone, industry groups still have to go through a “very difficult process” to acquire the large plots they need because title deeds are often unclear and ownership fragmented, said Richard Rossow of the Washington-based Center for Strategic and International Studies. think-tank.
In May, Foxconn – whose local investment was trumpeted as a major success by Mr. Modi – met with protests by farmers in the state of Karnataka who were not happy with the compensation they received from the local authorities for giving up land to the manufacturer, Indian media reported. The Taiwanese company did not return a request for comment.
Labor reform
In much of India, companies with more than 100 employees need permission from the state government to hire and fire. This prevents companies from adjusting their operations to meet demand, said Atul Gupta, partner at Bengalore law firm Trilegal.
Parliament has passed legislation to raise the threshold before official approval to 300, but the state authorities that must agree to the change have stalled.
Mr. Modi hopes that a strong victory on June 4 will give him the momentum and political capital to push back against the opposition, the two officials said.
“No government wants to give permission to companies to lay off their employees (but) … this is only used to drag out closures or layoffs indefinitely,” said Mr. Gupta, who advocates for labor reforms.
General Motors, for example, decided to close factories in Gujarat and neighboring Maharashtra in 2017, due to low sales. But unions opposed the closure and GM only got court approval to pull out of India in January. The US carmaker declined to comment. To avoid these difficulties, companies will use contract workers for long periods of time, said labor lawyer Amrish Patel.
HSBC economists said changes in labor regulations and land reform were needed to maintain high growth. In a note to investors last month, HSBC economist Pranjul Bhandari wrote that the reforms could allow India to grow at 7.5-8% over the next decade, creating many jobs.
But lawyer and union leader Sanjay Singhvi said nearly 60% of workers who benefit from the current labor laws would lose their protection if the BJP code is implemented.
Praveen Chakravarty, a senior economic policy official with the main opposition Congress, told Reuters that labor law decisions should be left to the State. The party’s manifesto calls for a review of the labor code passed by parliament.
High rates
Manufacturing costs in India have also increased due to import tariffs, including components for high-end manufacturing.
To encourage smartphone production, Delhi reduced import duty on components to 10%. But Vietnamese competitors have been paying tariffs between 0% and 5% for the same inputs, according to the Mobile and Electronics Association of India.
The average import tariff imposed by India on World Trade Organization (WTO) membership is 18.1%, compared to 7.5% for China, according to WTO data for 2022, the latest year available. The customs process is also faster and less burdensome in China, Mr. Gao said.
Imports can clear customs in China in about 20 hours, said the SMU professor. It takes 44 to 85 hours in India, according to a 2023 government study.
Beijing has focused its efforts on becoming a key node in the supply chain rather than trying to own the entire chain, which has led to greater efficiency.
For example, products exported by China often include inputs from other Northeast Asian countries, said Christian de Guzman of Moody’s Ratings. But Delhi “wants everything to come ashore,” Guzman said.