India Inc. Founder and CEO Manoj Ladwa outlines five ways in which India can attract companies looking for alternative markets to China.
Soon after cutting corporate tax rates last month, India’s Finance Minister Nirmala Sitharaman explained that the move would help shed some light on what foreign companies were looking for when setting up manufacturing plants in India.
A few days ago, she was explicit, saying that the Indian government will soon prepare a plan to woo multinational companies looking at alternative locations for their factories in the wake of the US-China trade war.
Plan in the works
“I will go back and … identify those multinational corporations, American, European or British origin, who are moving out of China or who probably are even contemplating (such a step). I will make a blueprint with which I will approach them and put forward to them as to why India is a far more preferable destination,” she said.
Corporate tax cuts – the first step
Sitharaman had said last month, “If Apple and its entire ecosystem move to India, it will have a greater effect on other companies.” That was soon after she cut the corporate tax rate for existing companies from 35 per cent to 25.17 per cent, and for new manufacturing companies from 29.12 per cent to 17.01 per cent.
Thus, India’s corporate tax rates are now comparable to the lowest rates charged in peer group countries such as China, the 10-nation ASEAN bloc and South Korea.
I had hailed this as a welcome move and written that it would go a long way in making India an attractive investment destination compared to countries like Vietnam, Indonesia, Malaysia and Bangladesh.
But while low and competitive corporate tax rates are a necessary condition for large foreign investment inflows, it is, by itself, not a sufficient condition. Investors look for much more.
Also, the window of opportunity is small – a few years at the most. India will have to immediately start attracting companies withdrawing from or looking for alternatives to China or it will miss the bus.
Experts say the Indian government has to quickly embark on several long-pending and some in-the-works reforms. The primary area of concern for foreign investors is the traditional rigidity of India’s factor markets – land, labour and capital.
Labour law reforms
As regular readers of ‘India Global Business’ will know, the Modi government has already initiated reforms in India’s antiquated labour laws that will facilitate large investments. It has passed the Wage Code Bill 2019, which replaced four related legislations.
The government has committed to subsuming the remaining 40 labour laws into three other codes to ease India’s convoluted and, often, contradictory labour regulations.
These codes are expected to make India competitive vis-à-vis its peer group. I am certain that these will also help attract greater FDI inflows, especially from companies leaving China.
Land on a ‘Plug and Play’ basis
Land is another issue in India and several billion dollars’ worth of projects are stalled because of disputes over land acquisition. Efforts at amending and easing historically stringent laws on land acquisition failed because the Modi government lacks a majority in the Indian Upper House.
To get around this issue, India’s Department for Promotion of Investment and Internal Trade (DPIIT) has set up a platform that provides information on 21,000 acres of land available for industries along the Delhi-Mumbai Industrial Corridor. The government now proposes to also include land available in private sector industrial parks on this platform. These lands are available in a plug-and-play condition and will ease issues faced by large investors from across the world.
Privatisation of PSUs
The government recently cleared a new policy to speed-up the privatisation of public sector units (PSUs) which will reduce the scope for administrative ministries to delay the sale process, as has often happened in the past.
The government has lined up an ambitious programme to divest its stakes in several companies, including national carrier Air India, oil marketing company Bharat Petroleum Corporation Ltd (BPCL) and the Shipping Corporation of India (SCI).
Relationship managers to handhold foreign investors
To facilitate the inflow of FDI, especially from companies looking for alternatives to China, the government’s investment facilitation agency, Invest India, will appoint specialist relationship managers to handhold investors from ‘concept to cash flow’. The condition: they must invest at least $500 million. I wonder why not for much lesser, but strategically important or high job-creating investments also?
Personal income tax cuts under consideration
Arguably, India’s biggest attraction is its large domestic market but consumption demand has weakened in recent times. The government is considering cutting personal income tax rates to put money in the hands of people in an effort to boost the flagging consumption rate. If and when this happens, it will provide foreign investors with another reason to come to India.
I am confident that these measures will boost India’s attraction as an investment destination and help Sitharaman in her goal of attracting some of the companies that are looking at rejigging their global supply chains by moving out of China.