Don’t forget those already making in India

As the China / US trade war continues and COVID-19 is seeing more multi-nationals reconsider their supply chain, what does this mean for India and for UK companies already heavily invested there?

It’s fair to say that Make in India has not been the rip-roaring success that Prime Minister Modi had hoped, with a number of underlying policy and structural challenges meaning that the programme’s incentives are outweighed by the high level of bureaucracy.

The UKIBC’s Doing Business in India report still shows that legal and regulatory impediments are the biggest challenges businesses face in India, as stated by 59% of the cohort in our 2019 report.

In the GOI’s economic reforms, Mr Modi is trying to address the three biggest challenges that India faces – land, labour, and liquidity. It is already reported that India is readying a pool of land twice the size of Luxembourg and has already written out to 1000 multinational firms to attract them to India. Land banking on this scale will come as welcome relief to investors as trying to amass land needed for large scale industrial investments can be pain staking. At present, there is no central land registry and investors must negotiate with a large number of smaller land owners to enable them to amass the land needed to invest.

Similarly India`s labour laws need reforming but that does not simply mean relaxing them all together, which has already been put in place in a number of states. It`s about getting a clear balance as relaxations can only be a short-term measure and the question is what happens next? There is also the need to consider the very high standards that many MNC`s will already have in place for their staff that they will want to maintain. Many of us can recall back lashes against major global brands where very poor working conditions and infrastructure have lead to child labour, fires and even building collapse. It is therefore essential that the government thinks more long term – to protect workers first and foremost, and to provide investors the flexibility they need to bring their projects to India.

The issues of liquidity is also one that the UKIBC has been watching with interest as these reforms are rolled out. As well as Land and Labour, investing companies also require good infrastructure. Put simply how am I going to get my raw materials and supplies in quickly (often in a just in time environment) and how can I easily get my product not just throughout India but to the entire South Asian and Middle Eastern region. Currently, the high cost of logistics and poor infrastructure in some areas makes this incredibly difficult so India`s strategy of creating large scale industrial parks in close proximity to working ports seems sensible. With the government having hand-picked 10 sectors — electrical, pharmaceuticals, medical devices, electronics, heavy engineering, solar equipment, food processing, chemicals and textiles – for its manufacturing base, all of these need not just access to global supply routes and chains but also integrated infrastructure.

During my 15 years in inward investment I have seen this done very well and not so well. Multi Model transportations systems has been the buzz in inward investment for a long time. Regions with access to ports, air links, rail link and good road links are considered favourable for investors! Companies do not want to be holding large amounts of inventory any more so the ability to get supplies in and stock out quickly will be key to the success of attracting these companies.

But just like companies who offer new customers favourable deals, India must also remember those foreign companies that are already invested in India. It is often these companies that have gone through the pain of setting up these supply chains, getting the necessary local management and local work force and of course adapting their products to the local market that hold the key to new investments.

Take for instance JCB, which first entered India as inward investors in 1979 with its Ballabgarh factory near New Delhi. In 2006/7 it set up two new factories in Pune with a further factory opening in Jaipur in 2014 and last year opened its sixth factory in Gujarat. This long term strategic investment is only possible when the companies feel the market conditions are correct and of course that the region or country wants them there; explicitly, JCB could have chosen to put its investment elsewhere in the region.

Other companies such as Rolls Royce, Perkins Engines and Diageo all have long histories of Making in India and should not be forgotten when Invest India starts it search for those new brands to attract!

Ensuring that existing investors are plugged into local networks, key officials and of course growth strategies is equally important to attracting new investors. Furthermore, businesses increasing their investment in a region often offer a lot less risk that investing in a brand new one!

So the GOI is right to develop Make in India buts lets not forget those already Making in India!