India's highly trained workforce and world-leading information technology capabilities make it an attractive base for global manufacturers to establish an Asia Pacific hub, said Alain Papiasse, Chairman of Corporate and Institutional Banking at BNP Paribas. However, he warned, enticing international players will be contingent on quickening the pace of economic reforms including that of the financial market.
Will India capture a bigger slice of global trade and manufacturing as companies look to de-risk operations post-Covid-19?
Alain was speaking during a panel discussion at the 43rd Annual General Meeting of the Indo-French Chamber of Commerce and Industry (IFCCI), held virtually in September.
India is already one of the top five global economies and a member of the G20, reflecting its rapid growth over the last 20 years. While the economy has been hit by the Covid-19 pandemic, shrinking by nearly 24% in the April-June quarter, it expanded by 7.4% in 2019, which was the second highest rate among major economies globally.
A coming shiftLong regarded as a domestically-driven economy, India's potential in global trade and manufacturing has become clear in recent years, driven by shifting global supply chains, policy support and the advantages of its location between Europe and the rest of Asia.
Many global manufacturers are considering relocating some operations from China to India in the face of ongoing tensions between Washington and Beijing. The same dynamic should continue to benefit India in the wake of Covid-19, as companies look to de-risk operations by not concentrating entire supply chains in one location.
India's bold 'Make in India' policy, launched in 2014 to promote investment in the manufacturing sector, has brought global companies like the manufacturers of the iPhone to India. Apple suppliers including Foxconn and Samsung Electronics were among 16 firms that won approval in October to manufacture products in India as part of a plan that aims to attract $143 billion of investment into mobile phone production over the next five years.
India is performing strongly in other manufacturing sectors, too. The country is now a world leader in the automotive industry, ranking fifth globally in 2019 with 4.5 million vehicles produced In pharmaceuticals, it is the world's largest supplier of generic drugs, while its Information Technology companies are the largest contributor to the country's total exports, with overseas sales worth a total of $135 billion in 2019.
But bringing even more trade and manufacturing to India will require continued progress in the financial services sector to support the transformation into a genuine global hub, Alain said.
The way forwardThe first area of financial reforms that would enable banks like BNP Paribas to enhance their support for industry in India would be greater liberalisation of the capital markets, he argued, particularly in relation to foreign exchange regulations. "While currency controls are in place, it's not a fully open market," Alain said. Though it is possible to operate under the current partial convertibility rules, the ability to transfer larger amounts would make it easier for global trade flows to reach India, he added.
"I am optimistic that continued enhancement of the financial services landscape will enable both global and local manufacturers to thrive in this key market – establishing India as a global manufacturing hub. "Streamlining India's complex banking regulations could also help global business operate in a more agile way in India, continued Alain. "The current framework can create delays in some situations when gaining authorisation for corporate transactions like acquisitions, for example." With 160 years of history in India, BNP Paribas has the experience and capabilities to deliver on behalf of its clients under the current system, he said, but streamlining processes would make it easier for banks to support the operations of companies manufacturing in India.
Alain Papiasse, Chairman of Corporate and Institutional Banking, BNP Paribas
Alain added that industry level discussions are under way with the relevant authorities to enhance the legal and tax environment, which is "absolutely critical to establishing an agile environment for those wishing to operate long-term in India."
Welcoming Indian regulators' openness to discussing further reforms as a positive factor for the country's post-Covid growth prospects, Alain said: "Our long-term commitment to India emphasises its importance to BNP Paribas. I am optimistic that continued enhancement of the financial services landscape will enable both global and local manufacturers to thrive in this key market – establishing India as a global manufacturing hub."