Sumitomo Mitsui DS Asset Management Co., Ltd.
“Direct investment” in India, which is expected to increase after moving away from China
Sumitomo Mitsui DS Asset Management Co., Ltd. (President and CEO: Takashi Saruta) publishes market reports on economic events and market trends on a daily basis. We would like to inform you that we have published a market report titled “‘Direct Investment’ in India, which is expected to increase after moving away from China” on December 15, 2022.
In August, Prime Minister Modi of India delivered a speech on the occasion of the 75th anniversary of independence, and expressed his determination to aim to join the ranks of developed countries within 25 years. In this context, he emphasized once again the stance of promoting the “Make in India” concept, which aims to attract foreign capital and realize a manufacturing nation. In addition to India’s measures to attract foreign capital, the restructuring of the supply chain (supply network) is accelerating the trend away from China, so “direct investment” from overseas is likely to increase.
[Point 1] “Make in India” increased “direct investment” from overseas ■In 2014, when Prime Minister Modi took office, he advocated “Make in India” and is working to promote the manufacturing industry with the aim of reducing the trade deficit by creating new jobs and expanding exports. The Indian government has set a goal of raising the manufacturing sector’s share of GDP to 25% by 2025. has promoted the attraction of foreign direct investment.
■In 2020, we introduced groundbreaking policies such as the Production Linked Incentives (PLI), which provides subsidies according to the increase in sales from production in India. As a result, for example, Japanese companies such as Daikin and Nidec have been selected as applicable companies for PLI, which targets the production of air conditioner parts. In response to the Indian government’s opening up of many fields to foreign companies expanding into the country and actively attracting investment, foreign companies from Japan, the United States, and Europe are expanding their investments in India. . ■In response to the Modi administration’s aggressive policy to attract foreign investment, “direct investment” from abroad is steadily increasing, contributing to the development of the Indian economy. [Image 1
[Point 2] Restructuring of supply chains away from China is a tailwind for India ■Furthermore, the recent movement to rebuild the world’s supply chains is likely to serve as a tailwind for “direct investment” in India. There is also a view that the supply chain has been fragmented due to the intensification of the US-China conflict, China’s zero corona policy, and the situation in Ukraine, and the previously integrated supply chain has become dysfunctional between democratic and authoritarian countries.
■ Under these circumstances, the United States is working with Japan and Europe to remove China from its supply chain. In May, the Biden US administration established a new economic zone concept “Indo-Pacific Economic Framework (IPEF)” in 14 countries including Japan, the United States and India, aiming to build a mechanism that can exchange inventories such as semiconductors in the event of an emergency. It seems that the trend of “departing from China” is accelerating. ■Companies around the world are stepping up efforts to reorganize their supply chains, and there is a tendency to choose Southeast Asia and India as new investment destinations and relocation sites for production bases. According to reports, Apple has produced almost all products such as the iPhone in China so far, but it is said that part of the production of the latest iPhone 14 will be done in India. [Future development] Expansion of “direct investment” from overseas contributes to economic growth
Under the slogan of “Make in India”, Prime Minister Modi implemented many reforms, including the introduction of bankruptcy and bankruptcy laws and GST, the development of infrastructure such as roads and railways, the relaxation of restrictions on foreign investment, and the onlineization of various permits and procedures. We succeeded in improving the business environment and attracting foreign investment. According to the World Bank’s Ease of Doing Business Ranking, India has improved significantly from 140th in 2014 to 62nd in 2020. ■In 2020, we will introduce PLI and aim to achieve the government target of 2025, and we are trying to further attract “direct investment” from overseas and upgrade the manufacturing industry. Although there is still a long way to go to achieve the government’s goals, the Modi government appears to be making steady progress toward its realization.
■The success or failure of the promotion of the manufacturing industry through “Make in India” is considered to be the key to predicting whether India will be able to achieve stable high growth over the long term. As the trend to move away from China accelerates, companies in each country are stepping up their efforts to reorganize their supply chains, so it is expected that the manufacturing industry will move to India in the future. India is expected to further accelerate its economic growth by attracting more production bases.
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