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Do you make semiconductors? Harshadeep Kemble, a 25-year veteran of the Indian Civil Service, wants to make you an offer you can’t refuse.

Kemble, chief industries secretary of India’s richest state, Maharashtra, says he is pursuing three to four foreign semiconductor companies, not all Taiwanese, with juicy incentive packages; them. What is it that they would like to have?’

Semiconductors is the most ambitious industry Maharashtra is looking to capture as the Indian state aims to position itself as a viable “plus one” for companies diversifying supply chains away from China.

Kumble is planning a road show in Taiwan to boost confidence in the industry. He wants to show that his state has cut red tape, speeded up customs clearance and is offering sweeteners from capital subsidies to tax-based incentives to encourage investment.

India is trying to reverse its historic manufacturing deficit compared to South Asian countries with the ‘Make in India’ campaign. With 6 million people entering the workforce each year, according to UBS, India is looking to create much-needed jobs. It allocated $34 billion to manufacturing incentive schemes to encourage companies to take risks to build factories. And Indian states compete strongly against each other to attract investments.

The southern state of Tamil Nadu has long been a pioneer. It already boasts being manufactured by companies such as Dell, South Korean technology group Samsung and carmaker Hyundai. Foxconn, Pegatron and Wistron manufacture Apple’s iPhone 14 in the state and in Karnataka. Earlier this year, Maharashtra lost out to Gujarat as a $19.4 billion chip manufacturing complex for Foxconn and Indian industrial group Vedanta.

Despite the urgency to reorient supply chains, experts say foreign investment is still not flowing into Indian manufacturing. Equity inflows of foreign direct investment between April, the start of the fiscal year, and September, fell 14 percent from a year earlier to $27 billion.

“In terms of inflows, we don’t see growth,” said Biswajit Dhar, a trade expert and professor at Jawaharlal Nehru University in New Delhi. Dhar says industrialists continue to complain about skills 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 in,” he says. “But will you focus on problems or opportunities?”

Jain pursued a common model of foreign investment: joint venture. In 2019, Vardman sold an 11.4 percent stake to Aichi Steel, a branch of the Japanese automobile company Toyota, in a deal worth $7 million. The tie-up was intended to provide Toyota with supply options outside of Japan, Jain said. But Aichi’s credibility also helped Vardman gain traction in Southeast Asian markets.

Some analysts argue that India is quietly benefiting from supply chain shifts. “We shouldn’t think we’re going to become China,” said Sameer Arora, founder and fund manager of Helios Capital, which invests in Indian stocks. “But can we have a little more growth? It’s happening.”

Makers of everything from specialty chemicals to towels say they are finding new export markets as Chinese rivals disperse.

Take India’s largest transmission tower manufacturer Skipper, a listed company based in Kolkata. Sharan Bansal, the company’s chief executive, expects export sales to double from just under Rs 4 billion in the last financial year ending in March to Rs 8 billion this year. With developing countries increasingly shunning Chinese financing, some American companies are now stipulating that Chinese products cannot be used in projects, Bansal said, which has helped him sell more towers. “We have actively gone out and pursued customers in countries where we know there is strong anti-China sentiment,” Bansal says.

Ashok Kajaria, chairman and CEO of Kajaria Ceramics, India’s largest tile maker, says the collapse in Chinese imports has allowed him to sell more tiles domestically.

Still in Maharashtra, Kemble doesn’t let a good crisis go to waste. If manufacturing companies in Europe want to diversify, “because the cost of energy there has been very, very high,” he says, “we have offered them Maharashtra as a solution.”

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