The Covid-19 disruption and policy changes by the government could prove to be the push that the ‘Make in India’ initiative needed to succeed, according to BofA Securities.
India’s effort to boost local manufacturing can be split into two parts: to get more foreign companies to invest in India; and import substitution, Amish Shah, India equity strategist at BofA Securities, said in an interview with BloombergQuint.
The consumer electronics, coal, defence and pharma sectors have seen a spate of policy changes, according to Shah. Since they account for 15% of India’s import bill, that could prove critical, he said.
Apart from higher duties, according to a BofA report, these changes include a proposed Labour Code on Industrial Relations bill, and proposed amendments to the Electricity Act to ensure contract enforcement and payment securities, among other things, in the power sector.
Citing the example of consumer electronics, India’s biggest import after oil, Shah said inbound shipments doubled in the last five years. But higher duties on imports boosted domestic production, which now contributes as much as imports, he said. While some critics would say that India is only doing assembly and not the high-end stuff, Shah said automobiles too followed a similar build-up in value chains.
“India didn’t start with a complete car to begin with. India graduated from doing basic assembly to making completely knocked down units,” he said. “Even a beginning in the value chain can be a pretty big delta mover from where India is currently.”
Before the Covid-19 pandemic, of the 3,000 companies BofA surveyed globally, the ones that wanted to move out of China preferred Mexico, Vietnam and India as destinations. Due to the supply-chain disruptions in China, Shah said that transition my gather pace. To add to that, reforms in sectors like labour and power, Shah believes that progress is happening.
Shah said India doubled transportation infrastructure capacity in the past decade, adding more than in the previous 60 years put together. And given the power and labour reforms that are in Parliament, there is potential, according to Shah.
There are enough signs to suggest, he said, that India is moving fast on issues that need to be resolved fast to attract foreign company investments.
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