Exclusive: US, Japanese firms moving their manufacturing ops from China to India, says Deloitte-South Asia CEO

A significant portion of manufacturing, especially where scale is required, is moving from China to India, said Romal Shetty, the CEO of Deloitte-South Asia. He said the global firms are moving their manufacturing operations to India as there is no other country in the world outside China that can match the scale that India has.

"As I talk to clients across, one of the things is China. And therefore, everybody wants to have China plus one strategy to ensure that they do sort of move. As part of that, not necessarily everything is moving to India, but we see significant portions moving to India, especially where scale is required," Shetty said in an exclusive interview with Business Today TV's Managing Editor Siddharth Zarabi.

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Shetty said India has 'scale' and 'smart manufacturing'. The combination of software, the combination of electronics, and the combination of manufacturing coming closer together is a very sweet spot for India, he said. "So that ability now to manufacture at scale efficiently, more digitally, in smart factories is also becoming a big element."

The top business executive said some Japanese, US, and European companies are moving manufacturing operations into India. "So, that is a shift that is happening."

Speaking on what was working for India, Shetty said the production-linked incentive (PLI) schemes had helped the country in attracting foreign firms. But he listed two other things that he thought were in favour of India. "We have domestic consumption, which is always a good thing. And we're not only dependent on an export market. So that helps."

When asked whether he agreed to the China-plus-one strategy, Shetty responded in affirmative and said: "If there's one country that is capable, that is the only country that is capable as India." He said other countries can do it as well but they can do it "at small levels".  

"And I think it is essential for the world also to have not just China-plus-one, it could be three or four hubs. So that you don't have any dependency on any particular region - it's good for the global economy as well. So, India has the potential to be a powerhouse, it'll still take some time, but at least directionally, we are going okay."

The China-plus-one strategy refers to the practice of firms cutting their over-reliance and diversifying their manufacturing operations beyond China. The need for this was felt strongly during Covid when the supply chain was severely impacted as China had gone into complete lockdown for months. Besides this, geopolitical tensions and policy uncertainties have also prompted firms to move out of China.  

In September this year, the Boston Consulting Group, a global management consulting company, said more than 90 per cent of the North American manufacturers it surveyed had relocated some production from China in the past five years — and a similar percentage plan to make such moves in the next five years.

And these firms are moving their operations to India, Mexico, and Southeast Asia. "Mexico, Southeast Asia, and India are quickly emerging as future export manufacturing powerhouses," the firm said. "All three offer competitive cost structures, deep pools of labor, and growing scale and capabilities across diverse industries. India has the additional benefit of possessing a potentially enormous domestic market."