India’s growing importance to the global economy

India, importance, global economy, Apple, iPhone, ChinaThe China Plus One narrative might affect “the world’s factory” and give opportunities for India and other countries well-placed to assume part of the global supply burden. Written by Natalya Zeman, equity investment director, Capital Group. Apple’s recent announcement that it will manufacture the latest iPhone model in India has added further fuel to a growing China Plus One narrative. This is where global businesses are avoiding investing solely in China to re-orient and diversify their supply chains. From an investment perspective, it will be important to gauge how far and how quickly this shift might affect “the world’s factory”, as well as the opportunity it potentially opens for India and other countries well-placed to assume part of the global supply burden.

Opportunities for India?

India is seen as an obvious beneficiary of this trend. Rajeev Chandrasekhar, the country’s Minister of State for Electronics and IT, recently outlined its desire to become a trusted global partner and part of Global Value Chains (GVCs) for logic semiconductors, chipsets and other electronic products. Speaking at the Bengaluru Technology Summit in November 2022, Chandrasekhar said electronics and semiconductor products are nearing a US$1.5 trillion industry. Stressing India’s growing presence, he noted that 92% of the mobile devices sold in the country were imported back in 2014, while in 2022, 97% were manufactured in India. In 2014, the minister stated that the country’s electronics ecosystem, comprising manufacturing, designing, innovation and production, was worth around US$10 billion, but this had grown to US$75 billion in 2022, and the country has set a target to increase production in the sector to US$300 billion by 2025. As such, we are currently talking to several India-based companies to understand how far these businesses might benefit from changing geopolitical tides. India’s government is looking to encourage manufacturing and has announced production-linked incentive schemes (PLIs) for different sectors and increased import tariffs on certain products and components. The first scheme is for the manufacture and assembly of mobile phones, and this has received a good response from businesses. For example, analysts estimate Apple will turn India into a global iPhone manufacturing hub by 2025. While the nation currently accounts for near to 5% of global iPhone 14 production, it is estimated by analysts that manufacturing capacity will expand and see India responsible for the production of 25% of all iPhones by 2025. Key for India, as it has been for China over the years, is the sheer scale of potential domestic demand, with a huge local market making the decision to set up manufacturing hubs in the country easier. This is why India is a different proposition to other options such as Indonesia, Thailand and Vietnam, which are dwarfed in population terms by China. In contrast, India is currently the world’s second most populous nation (home to 1.417 billion people in 2022, compared with China’s 1.426 billion) but could take the top spot as early as this year, according to the UN’s 2022 World Population Prospect report. India’s consumer base has also been growing fast, with the country set to overtake US smartphone demand in the next two years, for example.

Too soon to count out China

From a China perspective, the Plus One effect will happen gradually despite noisy headlines. Indeed, there are several factors to keep in mind for anyone expecting a rapid shift in supply-chain structures. Firstly, foreign direct investment (FDI) continues to be strong in China and is more than six times the level in India at present. China accounted for 19% of global FDI inward flow in 2021 compared to just 3% for India. Secondly, critics point to rising labour costs in China as a reason for companies to look elsewhere – and data bears the first part of that out. But labour costs are actually rising faster in India at present, rising 55% from 2010 to 2021, compared to 37.9% in China over the same period. Lastly, infrastructure will be a key factor. India, and many of the other emerging nations that could profit from the Plus One effect, still need to build out many of the roads and key infrastructure that China already has in this space over the coming decade. In India specifically, spending in this space has increased over recent years, but it will take time to reach the levels required to compete with the likes of China.

Looking ahead

Overall, looking to the rest of the 2020s and beyond, China looks set to lose its share of global trade, and India will likely gain, as will countries such as Vietnam, Thailand, Mexico and so on. But it is a mistake to count China out just yet – its existing manufacturing infrastructure, logistics facilities, skilled labour and supply chains make the country too useful to walk away from in a meaningful way anytime soon. However, while it is still early days, the set-up of India today is arguably better than China 20 years ago. India’s political regime is laser-focused on economic development and not afraid of taking short-term pain. They’ve also cleaned up the banking and real estate sectors, increased infrastructure investment, and also reduced bureaucracy and red tape to make the country more business-friendly. ©2023 funds global asia


A quiet revolution in Japan’s corporate governance

revolution, Japan, corporate governance, Shareholders, corporate, governance, standards, improvement, Tetsuro Takase, SuMi TrustShareholders in Japan no longer accept below-par corporate governance standards. Changes...

Why rising demand for healthcare is creating investment opportunities in China

rising demand, healthcare, investment, opportunities, China, Robert St Clair, Investment Strategy, Fullerton Fund ManagementRobert St Clair, head of investment strategy at Fullerton Fund Management, explores the...

Why take advantage of the recent dip in China’s internet sectors

advantage, China, internet, market, OctoberChina's internet market presents one of the most compelling long-term growth potentials for investors today, given the catalysts supporting the...

India’s growing importance to the global economy

India, importance, global economy, Apple, iPhone, ChinaThe China Plus One narrative might affect “the world’s factory” and give opportunities for India and other countries well-placed to assume...

Executive Interviews

Executive interview: PGIM CEO on where the ESG flowers should bloom

Sep 27, 2021

David Hunt, president and chief executive of PGIM, tells Romil Patel about leading a top 10 global asset manager in times where “empowering and encouraging the kind of investment decisions as...

Executive interview: Nicolas Moreau’s orderly transition

Jul 12, 2021

Nicolas Moreau, CEO of HSBC Asset Management, is moving to Asia as the firm looks to connect more directly with the region’s growth story. ESG is also a key focus – including the ‘just’ carbon...


Roundtable: Singapore comes of age as an Asian ESG hub

Dec 01, 2021

Strong ESG credentials strengthen the case for Singapore as a leader in Asia of the post-Covid recovery. Our panel discusses the risks and opportunities.

Roundtable: How well geared are Japanese assets for a new world?

Jul 12, 2021

As we prepare to emerge from Covid, experts look at overcoming demographic issues through a combination of good tech and corporate governance, improving productivity and meeting an ambitious government carbon emissions reduction target. Chaired by Romil Patel.