By Prabhat Kumar

Post-Covid-19, there is going to be an upheaval in foreign direct investment (FDI) flows in the manufacturing sector. As feelings of nationalism strengthen, investors may come under pressure to bring back manufacturing from China to their home countries. Some others may be looking to other safe havens outside China, as a long-term strategy for investments. Factors like trust, protection of intellectual capital and data, public opinion and security will gain prominence among other traditional factors of profits and growth.

Currently, India’s share of world manufacturing output is just 3%, which can easily be raised to 6% in the next 3-4 years, and to 15% by 2030, by putting in place an appropriate industrial framework. China increased its share of world output in manufacturing from 8.7% in 2004 to 28.4% in 2018. But post-Covid-19 their share may fall, opening up a new opportunity for India.

Since the economic pain may prolong and as foreign investors become more cautious, India will need to adopt a three-pronged strategy: to roar like a lion, run like a cheetah and build a nest like a bird. A declaration with a clear message that India is open for investment in manufacturing would bolster the confidence of investors.

Secondly, India must aggressively push forward its ‘Make in India’ programme with a sustained marketing campaign to highlight the advantages of its rising middle class and their consumption patterns. Their numbers are set to grow from 40-50 million now to about 400-500 million by 2030, while consumption may rise from $1.5 trillion to $5.7 trillion (according to a report by Bain & Co). India could thus become the engine of the next wave of growth, providing an opportunity for investments in automobiles, electronics, packaged food products and other consumption goods. The focus must be on setting up industries to meet the local demand first; generating exports will come next.

Thirdly, we must remember that getting investments is all about shelling out incentives, be it Deng Xiaoping’s Open Door Policy of 1979 in China or lower corporate taxes in Hong Kong or Singapore. So, the government must announce a very attractive scheme with tax concessions to be launched as a package (and not in a piecemeal fashion). A special package for investment operative between July and December of this year may be announced. The government must match or offer better terms than what other countries can offer. In the previous round, companies from China shifted to Vietnam and Bangladesh, which offered better terms and conditions. This time around, opportunity should not slip out of hand, since it appears investors are considering Thailand and even Myanmar as possible alternate destinations. This can be offset by way of incentives in the form of tax concessions. Import of capital goods may be allowed at nil rate of customs duty to bring down the cost of initial setting up. Simultaneously, a concession of 25% in corporate tax for the first 5-10 years may be in-built into the package. Concession being available in a time frame would force the interested parties to make up their minds quickly to set up industries.

Fourthly, since China’s negative image has arisen out of a secretive and opaque system, India’s advantage of a free democratic system with proper mechanism in place for protection of IPR and a free judicial system for any dispute resolution must be pitched out aggressively to build trust and confidence amongst investors.

The fifth item on the agenda relates to acquisition of land. Leasing of land as opposed to outright purchase should be the preferred mode for setting up an industry. There are many SEZs and industrial zones that are lying inoperative or are running below capacity. Land can be taken on lease by the investor from them on rental. In case there is any government land, the same can also be leased out for 10 years at a time. The idea is to bring down the cost of initial setting up.

The sixth issue relates to compliances and enforcement of central and state regulations pertaining to industry. Here an approach of hand-holding of the investor must be adopted. It should be the responsibility of governments at the Centre and states to ensure that the investor is advised properly at every stage and necessary facilitative measures are put in place. So, once the investor declares the intent to set up a factory, an officer of a joint secretary rank both at the Centre and states must be designated as the nodal officer to make sure the project takes off in a time-bound manner. Government officers in the new era must don a different role.

Lastly, a committee for resolution of all grievances of investors should be set up both at the central and state levels to ensure that all complaints are addressed in a time-bound manner.

The author is an advocate specialising in Chinese business and foreign investment. He was earlier adjunct faculty, IIT Delhi