Why Beating Vietnam In Manufacturing Is Crucial For India's Ambitions Of Being A China Alternative

India’s ambition to surpass Vietnam as Asia’s leading manufacturing hub is a race against time and efficiency.

As companies diversify their supply chains away from China, India is in the spotlight, aiming to become the go-to alternative for manufacturing in Asia. To achieve this, India faces the challenge of lowering taxes and enhancing supply chain efficiency to outpace Vietnam.

Challenges galore: While both nations are appealing to companies in the US due to their lower labour costs, Vietnam currently leads with a more established electronics manufacturing sector. Despite India’s potential, Vietnam’s earlier trade agreements with the US and simpler policy landscape give it a head start.

Vietnam’s dominance in sectors that rely on manual labour and offer low-profit margins sheds more light on the areas where India needs to improve. However, India’s growing relationship with tech giants, such as Apple and Google setting up production lines in the country, marks a significant shift towards becoming a manufacturing powerhouse.

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Another one of India’s hurdles is its high import taxes compared to Vietnam’s more favourable rates. Lowering these taxes, as planned by Prime Minister Narendra Modi, is crucial for attracting foreign investment. Yet, as experts like VinaCapital’s Andy Ho suggest, sustainable advantages lie beyond taxes, focusing on ease-of-doing business aspects, where Vietnam currently also holds an edge.

Infrastructure remains India’s Achilles’ heel, with significant delays in shipments and customs clearances. Improvements in infrastructure, alongside strategic tax reductions and policy simplifications, are likely to be essential for India to compete effectively.

Geopolitical advantage: Interestingly, Vietnam’s close ties with China could play to India’s advantage, offering a geopolitical edge to companies wary of the China-Vietnam relationship. As India works to modernize its logistics and policies, the global manufacturing landscape watches closely, recognizing the vast potential of India’s market and its journey towards becoming a manufacturing leader by 2047.

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