Employees work at a company at Haringhata, India on August 3, 2023. Photo: VCG
Indian Prime Minister Narendra Modi's government has decided to let lapse a $23 billion program to incentivize domestic manufacturing, just four years after it launched the effort to woo firms away from China, Reuters reported citing four government officials.
Chinese observers said India's abandonment of this specific strategic plan which is aimed at realizing its "Make in India" vision reflects that the South Asian nation is facing quite some limitations to support this manufacturing ambition, and they noted, instead, fostering cooperative relations with China is more conducive for New Delhi to boost its manufacturing capability.
The report said the Indian government hoped to raise the share of manufacturing in the economy to 25 percent by 2025. However, since the plan's introduction, manufacturing's share of the economy has decreased from 15.4 to 14.3 percent.
Many firms that participated in the Production-Linked Initiative scheme failed to kickstart production, while others that met manufacturing targets found India slow to pay out subsidies, Reuters report said.
While the scheme attracted some top-tier firms in sectors like mobile phones and pharmaceuticals, India's overall bid to rival China in global manufacturing chains has fallen short, Liu Zongyi, director of the Center for South Asia Studies at the Shanghai Institutes for International Studies, told the Global Times.
Some 94 percent of the nearly $620 million in incentives disbursed between April and October 2024 were directed to those two sectors, according to Reuters report.
India's decision to scrap the scheme stems partly from weak administrative efficiency, said Long Xingchun, a professor from the School of International Relations at Sichuan International Studies University.
"Essentially, India has to face the reality that India does not currently possess the necessary conditions for the rapid growth of large-scale manufacturing," Long told the Global Times. To develop a manufacturing sector, aside from government incentives and fiscal subsidies, robust infrastructure is essential. This includes reliable infrastructure, a skilled workforce, and a well-established supply chain. Unfortunately, India lacks these critical elements, Long said.
Long also noted a lack of policy sincerity, arguing India's promised subsidy were hard to access in practice. Recognizing these challenges and stringent conditions to be met, foreign investors have not been very enthusiastic to the plan.
"India may abandon this specific strategic plan, but it may not give up on its 'Make in India' vision," Long said, noting that manufacturing is vital for job creation, growth, and national strength.
Liu echoed that view, adding India is likely assessing whether new opportunities have emerged. India's ambition of strengthening its manufacturing sector and transforming itself into an economic powerhouse or even a global power have not receded, he added.
"India aims to leverage the US' Indo-Pacific strategy to push the shift of global supply chains from China to itself," Liu said.
According to Arvind Subramanian, a former economic adviser to the Indian government, Prime Minister Narendra Modi seized on the opportunity to encourage businesses to shift their manufacturing to China, NPR reported. With US President Donald Trump in power again, India hopes to profit by luring more manufacturing to its shores, the report said.
However, Long said that by avoiding confrontation [with China] and actively fostering cooperative ties with China, India could gain a great deal of opportunities in manufactures.
It is possible for some of China's industries to move to India and conduct production capacity cooperation with India. Also, we could have cooperation on the integration of supply chains, according to Long, adding that India's manufacturing sector needs to purchase equipment and technology from China, as well as sourcing Chinese components.
"Whether it's local Indian companies or foreign enterprises from Japan, Europe, or elsewhere investing in India, they depend on China's supply chain support," Long said.
Recent remarks from Modi have signaled a warmer tone toward China. Speaking in a recent podcast, Modi advocated for healthy competition between the two nations, emphasizing that competition should never turn into conflict.
"We are now working to restore conditions to how they were before 2020. Slowly but surely, trust, enthusiasm and energy will return."
"Modi's recent positive remarks on China-India relations are seen as a pragmatic approach to advancing bilateral ties and have been welcomed by the Chinese government. However, whether these remarks can translate into effective policies remains to be seen," Liu told the Global Times. "Cooperation and competition can coexist."
Still, India's Commerce Ministry recently asked the industry to identify areas where sourcing from China and other countries can be replaced by American goods, executives familiar with the development told The Indian Express last week.
"Being partners in mutual achievement and realizing "a cooperative pas de deux of the dragon and the elephant is the only right choice for China and India," Chinese Foreign Ministry spokesperson Mao Ning said on March 17 on China-India relations.
