India: A Golden Opportunity for Global Manufacturing

India: A Golden Opportunity for Global Manufacturing

Prime Minister Modi’s government is making an all-out effort to simplify and clarify labor laws and land acquisition regulations to ensure that India becomes more investor-friendly. New labor reforms announced in October seek to ease existing employment rules to boost manufacturing and job creation in the country.

“For the success of ‘Make in India,’ ease of doing business should be given priority,” says Modi.   The Prime Minister can speak with conviction, given his track record in the western Indian state of  Gujarat.  For example  Abbott Laboratories has just opened a  plant  there. In October the company began production at a $75 million factory in an industrial park. The factory is producing Similac baby formula and nutritional supplement PediaSure, which Abbott plans to sell to the growing Indian middle class. The plant will employ about 400 workers by the time it’s fully up and running next year. As for India’s infrastructure, John Ginascol, vice president, has no complaints. The officials in charge of the park “were able to deliver very good, very reliable power, water, natural gas, and roads,” he says. “Fundamentally, the infrastructure was in place.”

Labor reforms will go hand-in-hand with infrastructure development to support the manufacturing sector. (India has already acquired $57 billion in investment commitments from China and Japan since the new government took office. Much of the money will be used to build a giant industrial corridor between Delhi and Mumbai featuring high-speed trains and superhighways.).

India’s Labor Ministry will set up a website to allow companies to file a single report for compliance with 16 labor laws, keeping in line with the government’s promise of “minimum government and maximum governance.”  A program for skills development, in which the Labor Ministry will finance the first two years of training for apprentices in manufacturing units will be initiated. Additionally, a single universal account number will be given to each individual. This unique ID will allow for portability of payroll-financed pension and thus ease the difficulty of transferring money when workers changed jobs. India’s advantage in manufacturing is its hourly labor cost which averages 92¢, compared with $3.52 in China, according to Boston Consulting Group.

Vietnam and Indonesia are attractive, but they lack the deep supply of workers available in India. “It’s the only country that has the scale to take up where China is leaving off,” says Frederic Neumann, a senior economist with HSBC.



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