Modi Will Lift Trade, Manufacturing in Third Term, Adviser Says

A toy production facility in Greater Noida, India.

(Bloomberg) --

Prime Minister Narendra Modi's government has pledged to boost manufacturing in India as it seeks a third term in power, potentially increasing the country's control on supply chains and creating jobs, a government adviser said.

Modi's government would target the export-oriented sectors that face high import duties which hurt their competitiveness, Arvind Virmani, a member of the government's policy making agency Niti Aayog, said in an interview on Friday.

A Modi administration would also focus on lowering trade barriers and improving output-linked incentive plans, he said, adding that the finance ministry is identifying sectors where duties can be reduced.

Earlier this year, India reduced tariffs on several mobile-device components to boost production and make exports competitive. Industries including textiles, leather, and engineering goods have all made the case for lower import duties.

Modi is luring manufacturers to the country with heavy incentives, such as tax cuts, rebates and capital support. The strategy is showing early successes with firms like Apple Inc. and Samsung Electronics Co. ramping up production in India.

However, the World Bank put the share of manufacturing in the nation's gross domestic product at about 13% in 2022, while the South Asian nation had hoped to increase that figure to 25% by 2025.

Read more: India Slowly Taking Export Market Share From China, Study Shows

Virmani said India should also expedite pacts with major trading partners, including the US, to take advantage of investors' appetite for diverse supply chain that reduce reliance on China.

Modi's government is thrashing out agreements with the United Kingdom, European Union and Gulf nations to boost local manufacturing and job creation. Trade talks with the UK are in the final stages, while negotiations are ongoing with Australia and the EU.

Here's more from the interview:

Virmani expects the Indian economy to grow around 7% in the fiscal year starting April, buoyed by growing private investments, recovery in consumption and a revival of the farming sector
Land reforms and implementation of labor codes by states will be crucial to boost manufacturing
Virmani rejected the argument that India should focus on building its value-added services, such as global capability centers, instead of boosting low-value manufacturing. “It's not a question of choosing between service sector and manufacturing. We need everything for a country of 1.4 billion people,” he said
We have “completely missed the bus” in the past 20-30 years to take ownership of global supply chains

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