U.S., Europe firms looking at India as alternative to China

‘Though China is ahead in scale, trade wars spur de-risking’

Indian industry may well stand to gain from the fallout of the U.S.-China trade war, if the country plays its cards right, says Wheels India MD Srivats Ram . He dwells on the opportunities at hand and how challenges still remain. Excerpts:

How will the U.S.-China trade war impact Indian manufacturing?

China is significantly larger as a manufacturing base and has a bigger part of the global supply chain. However, China is now seen as not as cost competitive as it was in the past. Companies in the U.S. and Europe are looking at long-term options to build supply chain capabilities in India as an alternative to China. There is generally a move to de-risk.

The fact that U.S. and European firms are looking at options away from China is an opportunity for India. The other option they are looking at is to create a manufacturing hub in India, recreating what they did in China in the past. These are the two ways that foreign trade could potentially benefit India.

For the first time, geo-politics, as much as economics, is playing a role in global trade. An adjustment in trade relationship is happening. As long as India plays its cards right, businesses in the country will benefit. Our Prime Minister has played his cards well, both on trade and foreign relationship fronts. Infrastructure development, too, has been really good in the country in the last couple of years.

How will this affect employment?

India certainly is in a good position to take advantage of this though scale is a challenge for us to match China.

Quality is less of an issue for India. It is an opportunity for India to leverage over the next three years if we are able to scale up. We have to look at industries in India where the scale is somewhat comparable with that in China. There are enough segments which are supply chain-based to create some kind of manufacturing hub.

The government should look at job creation by expanding industries (even if multi-national firms create jobs) within India. Trade-related competition from other countries should be looked at from the point of view of creating enough employment in India. That’s when we will grow faster.

You have said industrial inflation is a challenge.

Fuel is a big inflationary factor for India because it creates a discontinuity in pricing due to rupee depreciation. Fuel prices affect the rupee in relation to the dollar. That affects landed costs of all other commodities entering the country and thereby creates a spiral of inflation. The good news is, the world economy is probably doing well after many years.

Globally, fuel consumption across the board is higher (that is a positive). For all commodities, demand is higher. But industrial inflation is a challenge.

How do you address the challenge?

Firms need to be flexible between different fuel types. On currency, we, as a company, believe that as long as we are a net exporter, we should be okay.

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