From China To India: Can COVID-19 And Japanese Lobbying Be A Game-Changer For Boosting India’s Manufacturing Sector?

Key Highlights

  • The talk of the world right now is to find a cure/vaccine for COVID-19, with the 2nd step being to focus on economic recovery
  • As various countries have had their faith shaken due to alleged mistreatment of the pandemic/data fudging by China, the same countries are looking to direct their businesses to other lands
  • India has come to the fore as a viable manufacturing base for these businesses, given its historically better global relations, cheap labor, and growing economic as well as soft power
  • Japan seems to be the key driver of this change, with various Japanese companies looking to jump ships from China to India

Much has been said about how China as a country and economy dealt with the novel coronavirus (COVID-19) pandemic. Ranging from allegations of data fudging to engineering the virus itself, the theories have no end to their abstractness and layers of argumentation. But regardless, as China seems to be getting back to normal, there does remain a certain sense of skepticism across various countries on how they’d like to continue their trade/business relations with China.

In this context, Japan seems to be one of the few countries which has acknowledged this dependency on one given country (China, in this case), so much so that the idea of diversifying its supply chains has been given formal mandate. Various major Japanese companies (the likes of Toyota Motor, Nitto Denko, Lawson, Mitsubishi Heavy Industries, Rohm, etc.) were already contemplating different solutions to deal with the COVID-19 impact on China in February 2020, where Nikkei Asian Review reported that out of the 80 companies it surveyed, 17 of them reported a possible change in shifting their operations from China.

The reaction which the Japanese Government issued was reflected in its Budget, where approximately 2.3 Billion USD was dedicated to fund companies looking to shift their operations out of China, boost the local supply chain via shifting to Japan itself, or even diversify their production channels to other South Asian countries (2 billion USD for shifting production; the remaining 300 million allocated for moving to other countries).

Here, Japan’s ideology of moving away from China can be capitalized on by India, which presents a potent market driven by various factors making it a suitable destination for Japanese operations. India and Japan have anyway shared historically productive bilateral relations, with India carrying a more centrist stance with global powers as compared to showing hostility towards powers like China, Russia, or the United States.

However, owed to the relatively rocky relations between China and Japan, China’s alleged mistreatment of the pandemic and its hegemony in supply chain systems (which has become a point of dependency), and the already rife tensions between US and China’s trade wars, now seems to be a good time for countries to bring in new partners for a more holistic growth trajectory.

With Indo-Japan trade/business relations already seeing a positive impact given the leadership of the 2 countries under Shinzo Abe and Narendra Modi, various factors (including but not limited to) such as Indian subsidiaries of Japanese companies outperforming their other global counterparts’ net profits by 30.6% can drive Japan to look at India for investments, establishments, and future opportunities.

As for India as a market, with its reformed tax structures, a business-conducive environment with a competitive labor advantage and a sturdy track record of attracting foreign investments can play a role in tilting the tide in its favor.

To further discuss these opportunities for Japanese companies in India and to talk about why in a post-COVID era, India can be a favorable destination for business for companies looking to shift bases out of China, Invest India has issued a detailed report. The following report can be accessed here:

Why Is India The Best Place For Japanese Investments In The Post COVID-19 World

The above report shall serve as a starting guide for businesses looking to enter the Indian market and make the most of its untapped potential.

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