By: Tavaga Research
The unprecedented situation created by COVID-19 has disrupted the supply chains globally. Many countries were taken aback by the potency of the virus. Nations were caught by surprise with healthcare systems falling short and broken in some countries. What started as a regional epidemic in China is now a global pandemic in a matter of a few months.
Currently, China is the largest manufacturer in the world with total exports of $2.5 trillion and producing almost one-third of all goods manufactured. As the distrust for China continues to grow, many global firms are now looking forward to diversifying their supply chains and this is where India must present itself as a strong alternative.
With the removal of lockdown in June, factory production in most parts of the country has started, however, the two big factory hubs, namely Maharashtra and Tamil Nadu, are still not up the curve.
What If The Manufacturing Activity Fails To Pick Up?
Although the manufacturing PMI rose to 47.2 in June (India began its unlock mission in June), as compared to 30.8 in May and 27.4 in April, it is the third continuous instance where the PMI failed to cross the 50 marks and India thus witnessed a contraction in the overall manufacturing activity for the third time. With a rise in positive cases and case fatality rates, many states and respective municipal corporations have once again resorted to strict lockdowns which can lead to a lack of demand. Until and unless there is confidence in the real economy that the pandemic is brought under control, demand and supply-side issues will exist.
What Role Has The Government Played To Spur Manufacturing In India?
On Friday (24th July), Minister of Commerce and Industry Piyush Goyal announced on Twitter that iPhone developer Apple has started manufacturing the iPhone 11, making it the first top model to be manufactured in India. The much-awaited iPhone SE 2020 may also be manufactured in India in the latter half of the year.
While the government needs to announce and implement the reforms and stimulus to boost the sentiment as well as revive the economy, the immediate steps must be to contain the virus and ensure the wellbeing of the vulnerable class of citizens. Also, allocation to healthcare through an increased contribution from GDP which will result in ‘care’ as well as an economic activity resulting in increased employment.
What Challenges Can India Face in Becoming the Manufacturing Hub?
In the past, India has attempted to boost the manufacturing sector by way of ‘’Make In India’’ (government program encouraging domestic manufacturing) and various export promotion schemes but with far little success achieved. While cheap labor and a young workforce will surely help India, a lot of tweaks are needed in the policy.
Apart from the crisis caused by the coronavirus pandemic, the prolonged trade war between US-China and rising production costs in China can help India achieve at least half of what China has been exporting to the world in the medium term. While India has economically suffered a lot due to the pandemic, the usage of a young workforce and technological improvements can drive the supply chains, making India the manufacturing hub.
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