India chases dividend from China trade tensions

Do you make semiconductors? Harshadeep Kamble, 25-year veteran of India’s civil service, wants to make you an offer you can’t refuse.

The principal secretary for industry in India’s wealthiest state, Maharashtra, Kamble says he is pursuing three to four foreign semiconductor companies, not all Taiwanese, with juicy incentives packages: “We are telling these companies, this is what we already have on the platter for them. What is it further they would like to have?”

Semiconductors is the most ambitious industry Maharashtra seeks to attract, as India’s states aim to position themselves as a viable “plus one” for companies diversifying supply chains away from China.

Kamble is planning a roadshow in Taiwan to build the industry’s confidence. He wants to show his state has stripped back bureaucracy, expedited clearances, and is offering sweeteners from capital subsidies to tax-based incentives, to encourage investment.

India has been trying to reverse a historical manufacturing deficit compared with southern Asian peers with a “Make in India” campaign. With 6mn people entering the labour market every year, according to UBS, India wants to create badly needed jobs. It has committed $34bn to production-linked incentive schemes to encourage companies to take risks building factories. And Indian states are competing hard against each other to attract investment.

The southern state of Tamil Nadu has long been a pioneer. It already boasts manufacturing by the likes of computer producer Dell, South Korea’s technology group Samsung and carmaker Hyundai. Foxconn, Pegatron and Wistron are manufacturing Apple’s iPhone 14 in the state and Karnataka. Maharashtra earlier this year lost out to Gujarat to be the site of a $19.4bn chipmaking complex for Foxconn and Indian industrial group Vedanta.

Despite the urgency to reorientate supply chains, experts say foreign investment is not exactly pouring into Indian manufacturing just yet. Foreign direct investment equity inflow from April, the start of the financial year, to September was down 14 per cent on the previous year, at $27bn.

“In terms of the inflows, we don’t see a stepping up,” says Biswajit Dhar, a trade expert and professor at New Delhi’s Jawaharlal Nehru University. Dhar says industrialists continue to complain about skill shortages and lack of infrastructure.

Sachit Jain, managing director of Punjab-based Vardhman Special Steels, understands why foreign investors are wary. “India is not an easy country to work with,” he says. “But will you focus on the problems, or will you focus on the opportunities?”

Jain has pursued a common model for foreign investment — a joint venture. In 2019, Vardhman sold an 11.4 per cent stake in a $7mn deal to Aichi Steel Corporation Japan, an affiliate of auto company Toyota. The tie-up was designed to ensure Toyota had supply options outside Japan, Jain says. But Aichi’s credibility has also helped Vardhman gain traction in south-east Asian markets.

Some analysts argue that India is quietly benefiting from supply chain shifts. “We don’t have to think that we will become China,” says Samir Arora, founder and fund manager of Helios Capital, which invests in Indian stocks. “But can we get a bit more growth? That is happening.”

Producers of goods from specialised chemicals to towels say that they are finding new markets for export as Chinese rivals fall from favour.

Take India’s largest transmission towers manufacturer Skipper, a listed company based in Kolkata. Company executive director Sharan Bansal expects export sales to double from just under Rs4bn in the last financial year, ending in March, to Rs8bn this year. Along with developing countries increasingly eschewing Chinese financing, some US companies now stipulate Chinese products should not be used in projects, Bansal says, all of which has helped him sell more towers. “We have actively gone out and pursued customers in the countries where we know that there’s a strong anti-China sentiment,” Bansal says.

Ashok Kajaria, chair and managing director of India’s largest tile-maker Kajaria Ceramics, says a collapse in Chinese imports has let him sell more tiles domestically.

Back in Maharashtra, Kamble is not letting a good crisis go to waste. If companies manufacturing in Europe want to diversify “because the energy cost has gone very, very high there,” he says, “we have offered them Maharashtra as a solution”.

chloe.cornish@ft.com