Indian Prime Minister Narendra Modi intends to implement a series of business-friendly reforms if he secures a third term, aiming to transform India into a global manufacturing hub.
According to anonymous government sources, Modi plans to streamline labor regulations, making it easier to hire and fire workers, and offer subsidies for domestic production, similar to those for semiconductor and electric vehicle industries. Additionally, he aims to reduce import taxes on key inputs to lower manufacturing costs.
Modi’s office and relevant ministries did not comment on these plans. Exit polls predict a significant victory for Modi’s BJP-led coalition when results are announced on June 4.
Modi's campaign focuses on economic development, positioning India as an alternative manufacturing hub to China.
Despite being the world's fastest-growing major economy, India's manufacturing sector lags, contributing less than 3% to global output compared to China's 24%. The government aims to boost this to 5% by 2030 and 10% by 2047.
Interviews with various stakeholders reveal three major obstacles: restrictive labor laws, land acquisition challenges, and an inefficient tariff regime. Modi's vision for industrial zones, like the Dholera Special Investment Region (DSIR) in Gujarat, mirrors China's successful special economic zones. While progress has been slow, local officials expect significant activity in a few years.
Labor laws requiring state authorization for hiring and firing over 100 employees hinder flexibility. Although legislation to raise this threshold to 300 has passed, state-level implementation is stalled. Modi hopes a strong election win will help overcome this resistance.
High tariffs on imports, including manufacturing components, also elevate costs. For instance, smartphone component import duties are 10% in India, compared to 0-5% in Vietnam.
India's average tariff is 18.1%, much higher than China's 7.5%. Additionally, India's customs processes are slower and more cumbersome than China's.
Experts suggest that reforms in labor laws and land acquisition are crucial for sustained growth, potentially enabling India to achieve 7.5-8% growth over the next decade.
However, there is concern over the potential loss of protections for workers currently covered by existing labor laws. Opposition parties argue that labor law decisions should be decentralized to state governments.