ASIA OUTLOOK

By Christine Casati

The Global South Part 3: Focus On India

In the lead-up to and aftermath of Prime Minister Modi’s state visit to the White House in June, there has been a deeper dive by many analysts into the U.S. geopolitical and economic ties to India. The overall outlook is positive and dynamic. India’s reported human rights violations and ongoing decades-old neutral position toward Russia have not damaged its growing global and regional clout. With a population exceeding China’s, and a major drive to expand export manufacturing, digital connectivity, and transport infrastructure, India continued is poised to become a major global economic power, possibly exceeding China’s prospects in the decades to come.

G20 and India’s Growing Influence

This year it is India’s turn to host the Group of 20 (G20), the intergovernmental forum comprised of 19 countries plus the EU. The physical summit of leaders of these nations takes place September 9-10 in New Delhi. Modi is staking his reputation on bringing together these leaders, including Putin, along with Presidents Biden and Xi Jinping, to help address world crises and contribute to greater stability before India’s term ends in September. While India opposes a U.S.-led world order, its foreign policy is becoming increasingly assertive and hostile toward China’s growing influence. It supports a more multi-polar world. It has strong relations with Israel and has become a major partner in the tech sector there.

India is the world’s fifth largest economy, behind the U.S., China, Germany, and Japan. Its GDP is growing at an annualized rate of 6.5% so far this year. Goldman Sachs predicts it will become the second largest economy by 2075, mainly because its population will continue to grow through 2040 while China will decline.

India also boasts the greatest diaspora in human history. Since the U.S. opened to Indian immigrants in 1965, they have contributed greatly to GDP growth and to the ranks of engineering and media professionals, scientists, doctors, lawyers, lawmakers, and internet gurus, and have pioneered call centers and many software and iCloud services. 12 CEOS of Indian descent lead the world’s biggest companies (e.g., Alphabet, Microsoft), and over 200 are in leadership roles in 15 countries, including Kamala Harris of the U.S. and Rishi Sunak of the UK.

Manufacturing Challenges: Readiness and Reality

There has been a lot of hype about India taking over China’s position, becoming the “manufacturing factory of the world.” To that end, India has undertaken major business reforms and streamlined digital connectivity and logistics. There are currently over 760 million internet users, projected to be 900 million by 2030, providing a data goldmine for potential producers and consumers alike. Currently, India’s reliance on IT and consulting services exports are unusually high, about 40% of export income, generating a whopping $200 billion in export revenues. But that sector only employs 5 million people.

Thus, policymaking has focused on upgrading infrastructure to accommodate more domestic and export manufacturing and related employment. India’s roadways have expanded by 25%, and the number of airports has doubled under Modi’s two terms in office. India has continued to expand digital broadband connections and invested heavily in green energy infrastructure. It will add more solar generating capacity in 2023 than anywhere else in the world except the U.S. and China. If Modi wins a third term next year, expect continuity in expanding economic policies to support manufacturing and sustainable energy.

While major global companies and investors are convinced of India’s potential, and some have relocated partial operations there from China, many more have relocated to Vietnam where there are lower manufacturing costs, less red tape, and more predictability. For example, India is known for sudden electricity outages and occasionally shutting down the internet nationwide to control the flow of negative information. As India emerges on the world stage, a growing familiarity with these and other conditions has highlighted some of the government’s challenges in making “Made in India” a reality. versus foreign ones is unsettling. Modi needs to show more domestic support. Less than 50% of India’s massive population is employed, and education has been focused on the elite. While this creates a huge potential reservoir of young workers as India’s population grows and China’s declines, it will require major investments in education and training of unemployed workers.

India also has a daunting maze of business operating regulations, tariffs, licenses, rules, and taxes, a legacy of post-Colonial and Soviet-style central planning, which India has been trying to shed through business reforms since 1991. But its policies are still fluid and uncertain. For example, India has simply banned many Chinese tech firms from competing there. There are unclear “rules of the game.”

Apple and Foxconn

It has also created instant digital payment platforms by cell phone, bypassing the need for individuals and suppliers to go to a bank or pay in cash, eliminating the potential for corruption. This is a huge boost for the entire population, most of whom are still poor by world standards.

Some potential threats and roadblocks for foreign investors concern the slow erosion of institutions like the court system as well as regional unrest along its border with Myanmar, Bhutan, and China under Modi. Also, a lack of clarity over protectionist policies moving forward regarding the support of domestic enterprises

Although Apple opened its first store in India in May and plans for many more, its component sourcing and assembly of handsets there remain at the lower end of the value chain. China still remains Apple’s primary assembly, quality, and export control center. Earlier this year, the Taiwanese electronics manufacturer Foxconn, a major OEM for Apple, had plans to break ground on a $500 mil factory in India but reversed course and pulled out in July. Days after it pulled out of a $19.5 billion chipmaking project, its joint-venture partner Vedanta said it had lined up partners for a modified semiconductor and display ecosystem project in Prime Minister Modi’s home state of Guja- rat. One of the partners is Taiwan’s Innolux for display fab manufacturing. Reuters has reported that among the reasons for Foxconn’s pullout were deadlocked talks to finalize the participation of European chipmaker STMicroelectronics as a tech partner and delayed government incentive approvals.

UPDATE: On July 31, India’s southern state of Tamil Nadu announced an agreement with Taiwan’s Foxconn to invest $194 million in a new electronics component manufacturing facility that will create 6000 jobs.

The facility will be for Foxconn Industrial Internet (FII) nearby the state capital of Chennai but separate from the sprawling Chennai campus, which assembles Apple’s iPhones and employs 35,000 people. India has become one of Apple’s five top markets worldwide for iPhones. In the meantime, India’s Parliament on Aug. 3 abruptly announced new regulations restricting the import of laptops, including Apple’s iPads and MacBooks. Import licenses will now be required. The move reflects India’s growing efforts to boost local electronics manufacturing and curb imports from China. It has also recently restricted the imports of electronic components from China.

The Outlook: India has the op - portunity to become the China of tomorrow, while China will struggle to regain its reputation as a desirable resource for global manufacturing. Dominance requires a certain savoir-faire, which may be off the Chinese rose.

200” Max O.D.

6” Min O.D.

Author profile: Christine is co-founder and President of China

Human Resources Group, Inc, a management consulting firm based in Princeton NJ. She has provided U.S. companies with strategic development and project implementation services for projects in China since 1986 n

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