Economics · Foreign Trade and Policy
The global economy is shifting from 'Efficiency-driven Globalization' to 'Resilience-driven Globalization,' often termed as 'Deglobalization' or 'Slowbalization.' A major US-based smartphone manufacturer decides to reduce its dependence on China (the 'China Plus One' strategy) and looks at India as a potential manufacturing hub. However, the manufacturer is concerned about India's 'Inverted Duty Structure' (where duties on components are higher than on finished goods) and 'Logistics Bottlenecks.' To attract this investment, the Indian government offers a Production Linked Incentive (PLI) and promises 'Regulatory Stability.' Meanwhile, a global minimum corporate tax of 15% is being implemented by the OECD (Pillar Two) to prevent a 'Race to the Bottom.' Based on this scenario, what is a primary challenge for India in capturing this global shift in manufacturing?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
- 1The risk of the US company taking all profits back to the USA through Transfer Pricing, leaving no tax revenue for India.
- 2The challenge of ensuring that domestic component suppliers develop fast enough to meet the 'Value Addition' norms of the PLI scheme.✓
- 3The possibility that the 15% global minimum tax will make India's Special Economic Zones (SEZs) illegal under international law.
- 4The threat of the US Dollar becoming obsolete, making it impossible for the manufacturer to pay its Indian workers.
Correct answer
The challenge of ensuring that domestic component suppliers develop fast enough to meet the 'Value Addition' norms of the PLI scheme.
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