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Saving The Plunging Economy

Saving The Plunging Economy

The pandemic, which originated in Wuhan, China and swiftly spread across the globe, thereby paralyzing the economy of all the countries, resulted in China facing serious flak and risk of “economic distancing”. The virus has, in one stroke, managed to affect more than a nuclear weapon, which resulted to close and cripple the economies of the developed and developing countries, disrupting supply chains and leading towards massive scale of unemployment. Such an outcome has resulted in the countries across globe sharing strain relationship with China. At present, companies having their origin in the Western countries and the Asian countries have been contemplating ways to withdraw and shift their base from China. Therefore, the country, which was once considered as a go to hub for investments by the western world is now set to loose swathe of its small to midsized and large businesses.

India, which has also been economically crippled due to the outbreak, is now quite determined and desirous to attract the multi-billion-dollar businesses and foreign investors to the country, in order to ramp up and boost the dipping economy. Primarily, quite a number of US, Japanese, Korean Companies are proposing to shift its plant and are looking at India as a viable option. The said sentiment was also echoed by the Hon’ble Prime Minister in his address to the nation, wherein he continuously stressed on the fact that “India can emerge as the global nerve center of complex modern multinational supply chains in the post COVID-19 World.”

This can soon prove to be quite true, with India set to become a manufacturing hub. As per the latest report, major handset maker Lava International plans to shift its export manufacturing base from China to India this year on the back of an incentive scheme, and thereby investing a sum of Rs. 800 Crores. On the other hand, Apple is looking into shifting a significant portion of its production to India from China, a move that would make the tech behemoth India’s largest exporter. If the said reports are set to be true, then India will soon be in a position to become the next manufacturing hub. Thus, to make India the global nerve center, the Indian Government is working on the incentives to attract such additional global conglomerates to the country. India is also engaged in talks with around 1000 Companies, involved in the manufacturing sector, primarily in the area of mobiles, electronics, medical devices, textiles and synthetic fabric to invest.

There are various factors which promotes India as the 4th most attractive investment destination for investment by the global conglomerates. Thereby, to take advantage of the present situation, the Government has apart from fighting the pandemic, been relentlessly working behind the closed doors to bring about several reforms which could vastly benefit the foreign companies at large. At present, the Government has identified vast hectares of land to be given to the foreign Companies, as they constantly complained about the complicated legal procedures involved in procuring land. This remind us of the South Arabia state run oil Company, i.e., Armaco, which was frustrated due to the time take for the acquisition of land or the case of India’s 1st Bullet Train, where India is yet to acquire the land for its ambitious project. Therefore, it appears that the Government does not intend to repeat its mistake and is thus engaged in creating land banks.

Taxation policy of our Country has always been a deadly nightmare for the Foreign Companies, which often prevented them from making inroads into the country. Thereby, in order to clear this obstacle, the Government has been continuously working to bring about significant reforms, which includes corporate tax being slashed to 25.17 % and for new manufacturers, the applicable tax being brought down to 17 %, thereby making it the lowest in South East Asia. Therefore, India, which is more economical in terms of securing land and affordable skilled labour, is willing to bring about radical changes in its rigid law to prevent any major stumbling block for companies from investing in the country at this hour.

Thus, in order to make the country attractive for investment across all folds, the Government is working in sync with the states to ensure effective and sustainable solutions and for which it has instructed all the states to start preparing a roadmap. Further, it appears that States have also geared up in strategizing policy to ensure that the foreign companies shift their commercial units in their respective states. The same being so as Rajasthan has already constituted a special task force to finalize a plan and package for providing facilities and concessions. Further, Uttar Pradesh has been working upon changing its industrial policy and the Gujarat Government is busy vying to increase its foreign direct investment (FDI) from Japan. Thus, in crisp, the States apart from fighting the COVID crisis are also working and strategizing on offering incentives and subsidies to attract the Foreign Companies.

However, at the same time, it is also vital to remember that there is a need to adopt/undertake corrective measures to attract global investment, else India would lose out to countries like Vietnam and Taiwan, which have proven to be the next best alternative destinations, as they benefitted the most out of the US- China Trade War. Thus, there is a greater need to push for a greater level of investment, followed by need to create conducive conditions, regulations and norms for the specific units to thrive. It is incumbent to note that the country needs to realize that the requirement of every business will be specific driven. Therefore, even when India is planning to attract huge number of businesses, it should unequivocally ensure that it caters to the need of requirement of such specific business and does not leave the remaining high and dry.

Another crucial aspect being that the Foreign Companies have always reiterated its demand to the Government for greater reforms in land and labour law, liberalization of trade, spending more on infrastructure and favorable taxes. Though, India has undertaken quite a substantial reform concerning taxation and for the balance the work is in progress. The same being so as India’s global rank of compliance stands quite low which reflects the need for substantive changes. Apart from the above, the Government has always considered/treated the “population” as a positive factor. However, the same can only be of much use, if the workers are equipped with skilled abilities. This also bring us to the issue of pendent significant changes required in Labour Law. Our Labour Market has been characterized as extreme rigidities while over 90 per cent of the labour force is outside formal protection. If the Indian Government is eyeing investment from foreign Companies, it is a perquisite that immediate changes be brought about by the Central and State Government. Lastly, India, is one such country where industries are highly dependent on transportation of its raw materials by roads. Whereas, on a global scale, industries are quite less dependent on transportation through roads and prefer other mode. This portrays the need for lumpsum investment in waterways/ railways.

Thus, it is submitted that India has the capacity to gain a place in the global supply chains, which can be plausible only through serious investments in infrastructure and governance. It is important to note that India continues to face stiff competition from South East Asian countries and unless India immediately acts upon redundant policies, India will continue to faces tough competition from elsewhere in South and Southeast Asia. It needs to be remembered that this is a time period when companies are seeking alternative destinations for their investment/ manufacturing and if the drawbacks are well taken into consideration and worked upon, India can definitely manage to save it’s economy from plunging any further.

About Author

Ashu Kansal

Ashu Kansal is a Partner at Adhita Advisors, having more than fifteen years of experience. His main areas of expertise are banking and finance laws, securitization - related matters, recovery of debts, suits, and arbitration matters. Apart from drafting various pleadings, he also advises/ gives opinions and strategies to clients on various litigation matters in various forums including the Supreme Court, High Courts and various other Tribunals across the Country. He has also briefed top Senior Counsels across the country for multinational clients.

Milan Singh Negi

Milan Singh Negi is a Principal Associate at Adhita Advisors and has an experience of over seven years and has been consistently involved in corporate Restructuring and Commercial Disputes matters. He also has considerable experience of appearing before various Forums, including the Supreme Court of India, Delhi High Court, National Company Law Appellate Tribunal, Debt Recovery Tribunal, National Company Law Tribunal, Arbitration Tribunals, and various other Courts/Authorities.