India plans to offer incentives to firms moving out of China amid trade war

India is weighing offering incentives to attract companies moving out of China amid its trade war with the US, a person familiar with the development said.

Financial incentives such as preferential tax rates and the tax holiday provided by Vietnam to lure companies are among measures being considered, the person said, asking not to be identified as the discussion is still private. Industries identified for incentives include electronics, consumer appliances , electric vehicles, footwear and toys, according to a trade ministry document seen by Bloomberg.

Economies, including Vietnam and Malaysia, have benefited from businesses trying to sidestep tariffs, while India has largely missed out on any investment gains. The trade ministry’s effort is part of a larger plan to cut reliance on imports, while boosting exports, and needs Finance Minister Nirmala Sitharaman’s approval.

Other measures include setting up affordable industrial zones across India’s coastline and giving preference to local manufacturers in government procurement as an incentive to win over companies looking for an alternative production base, according to the trade ministry document circulated to stakeholders.

The plan will help grow India’s manufacturing base and will aid Prime Minister Narendra Modi’s flagship ‘Make in India’ initiative, which aims to boost manufacturing to 25% of the economy by 2020. Doing that will help India narrow its huge trade deficit with China, its largest commercial partner.

A sector-wise analysis by the industry department, which oversees the foreign direct investment policy, shows investments by Chinese companies can flow into smartphones and components manufacturing, consumer appliances, electric vehicles and parts, and daily use items like bed linen and kitchenware, 95% of which are currently imported from China.

There is also an effort to step up exports in sectors vacated by the US due to the trade standoff. The government has identified more than 150 items where it feels exporters can increase business with China. Some of these are prepared or preserved potatoes, synthetic staple fibers of polyesters and t-shirts, hydraulic power engines, and supercharger for motors.