India’s China+1 lessons lie within its own States

The article highlights the long-term nature of building industrial capacity and the difference between low-value assembly and high-value component manufacturing. It notes that while schemes like Production Linked Incentive (PLI) and Electronics Components Manufacturing Scheme (ECMS) provide crucial tariff advantages and subsidies, they are insufficient on their own. Creating backward linkages (establishing a local network of suppliers for raw materials and components) takes decades, as seen in Tamil Nadu's evolution from an automobile hub to an electronics manufacturing center. The significant gap between electronics exports ($48 billion) and imports ($116 billion) underscores India's heavy reliance on Chinese supply chains for critical components, revealing that much of the current 'manufacturing' is merely low-value assembly. This points to the need for sustained policies to deepen value addition within the country.

The editorial brings attention to competitive federalism (states competing with each other to attract investment) and the critical role of state governments in industrialization. While national policies like the amendment to Press Note 3 (2020) (which regulates FDI from countries sharing land borders with India) set the broader regulatory framework, the actual execution—providing land, ensuring power supply, clearing approvals, and offering a trained workforce—happens at the state level. The authors stress the importance of policy continuity, where state governments must honor investment commitments regardless of political changes. The concentration of manufacturing in southern and western states, while more populous northern and eastern states lag behind, highlights a widening regional disparity that could pose political and economic challenges, challenging the central government's goal of geographically balanced growth.

The piece provides a critical look at how foreign investment is measured and the limitations of current data. It points out that the Department for Promotion of Industry and Internal Trade (DPIIT) records Foreign Direct Investment (FDI) based on the location of a company's head office rather than where the factories are actually built or the capital is deployed. This methodological flaw leads to an inaccurate picture of industrial growth, making states with corporate hubs like Delhi or Maharashtra appear to attract more manufacturing investment than states like Tamil Nadu, which is actually building the factories. Better governance and policymaking require accurate, granular data that reflects the reality on the ground, allowing for targeted interventions to replicate successful industrial ecosystems across other states.