India, On the Road to Becoming the Next Supply Chain Hub
With 1.4 billion consumers and being the 5th largest and fastest-growing major economy in the world, India is quickly emerging as an elephant in the global economy.
For those looking to broaden their supply chains and gain resilience, India offers a plethora of opportunities, including the availability of natural resources and a large, competitive, highly educated, and skilled workforce.
Other significant benefits include geo-political stability, a geographical location close to the Middle East and Europe, and a stable economy and currency resilient to global market volatility. The country also offers a massive domestic market for every sector, making it an attractive supply base.
India’s exports grew at a Compound Annual Growth Rate (CAGR) of 18% from 2001 to 2022, nearly three times the CAGR of global exports
In this article, we look at the various schemes and initiatives, such as ‘Make in India,’ that are helping the country to minimize red tape, create world-class infrastructure, improve logistics, and promote growth and innovation, attracting many global brands such as Apple, Kia and Samsung, and positioning itself to become the world’s next big supply chain hub.
The ‘Make in India’ Programme
Launched in 2014 by Prime Minister Narendra Modi with the primary goal of attracting global investments and strengthening India’s manufacturing sector, ‘Make in India’ is a government programme designed to spur investment, promote skill development, protect intellectual property, foster innovation, and build world-class manufacturing infrastructure in the country.
Led by the Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry, Government of India, ‘Make in India’ is vital to the economic growth of India, utilizing India’s existing talent base as well as creating additional employment opportunities. By focusing on manufacturing which has a huge multiplier effect on economic growth, generating jobs, innovation, and investment and often leading to a higher standard of living, the country can help ease its overall trade deficit, something the service sector cannot do on its own.
The Four Pillars
The “Make in India” initiative is based on four pillars:
Following the well-known business principle of “make it easy for them to do business with you,” the programme set a goal to improve India’s ranking on the Ease of Doing Business (EoDB) index by simplifying bureaucratic processes, eliminating any unnecessary laws and regulations, becoming more responsive, increasing government transparency, and improving accountability.
Reforms are also underway in many areas, including payment of taxes, property registration, connecting power, contract enforcement, and decreasing the number of documents for trade (for e.g., the mandatory documents required for exports and imports were reduced from 11 to 3).
Thanks to such changes, according to the Make in India website, among the chosen 190 countries, India ranked 63rd in the ease of doing business ranking in 2020 and is one of the top 10 improvers, for the third time in a row, with an improvement of 67 ranks in 3 years.
Recognizing that different sectors of an economy are interdependent and require modern infrastructure that facilitates growth and overall economic and social development, the government is building 21 new nodal industrial cities, modernising railways, ports and inland waterways, developing dedicated freight corridors and constructing a “pentagon of industrial corridors across the country to provide developed land and quality infrastructure for industrial townships.”
The programme focuses on the following 25 sectors in the infrastructure, manufacturing, and service industries, with details shared through brochures and an interactive web portal.
For the sectors of defense (up to 74% under automatic route) and railways (up to 100% under automatic route), this marks the first time they have been opened to further Foreign Direct Investment (FDI).
By acting as a facilitator and intermediary and partnering with industry in their goal toward economic development, ‘Make in India’ plans to shift the old commonly held mindset of regarding government as purely a regulator and bring about a paradigm shift in how the government interacts with industry.
To that end, created in 2014 to provide investors services throughout the investment life cycle from the pre-investment phase to execution and post-delivery services, the Investor Facilitation Cell assists investors throughout their time in India.
The Continuation: India’s Continued Policy Push
Today, along with what was started by ‘Make in India’, the government’s most recent policy push is solidifying India’s global competitiveness and setting the stage for India to become the next supply chain hub.
These include the following initiatives:
- Launched jointly by Australia, Japan, and India in 2021, the Resilient Supply Chain Initiative (RSCI) aims to build supply chain resilience by developing well-planned industrial clusters and supply chain models and addressing points of vulnerability such as over-dependence on countries such as China
- Introduced on September 18, 2022, the National Logistics Policy was created to further strengthen supply chains and better support its logistics sector, which is expected to grow to USD 380 billion by 2025. While announcing the policy, Prime Minister Modi stated the policy should “add fresh impetus to India’s manufacturing sector.” To help facilitate exports, India has also set up 40 air cargo terminals, 35 multi-modal logistics facilities, 30 airports with cold storage facilities, as well as new eco-friendly waterways
- A lack of robust infrastructure can often stagnate growth for developing nations. To achieve its ambitious goal of becoming a USD 5 trillion economy by 2025 and address the country’s largest roadblock to the success of ‘Make in India,’ The National Infrastructure Pipeline (NIP) plans to spend USD 1.4 trillion on infrastructure between 2020 and 2025. A large portion of the investment (almost 80%) will go toward Roads, Urban and Housing, Railways, Power (Conventional and Unconventional), and Irrigation
- Aimed at boosting domestic manufacturing and exports, the Production Linked Incentive (PLI) schemes having an outlay of USD 24 billion, are expected to increase India’s production by USD 365 billion over five years. Introduced in March 2020, the PLI schemes help companies in 14 key sectors to integrate into global value chains by significantly decreasing logistics costs, strengthening infrastructure connectivity, and reducing the corporate tax rate for new manufacturing to 15%
Growing Global Confidence
Thanks to its many improvements, multinational corporations such as Apple Inc., Amazon, DHL, Ericsson, and even Swedish retailer IKEA are beginning to recognise, and take advantage of, India’s strengths as a resilient, robust supply chain option.
DHL stated the company’s intention to invest EUR 500 million in the country over the next five years, while IKEA will be investing an estimated USD 1.2 billion to increase its retail presence and has plans to build a 48,000 square meter shopping centre in the Delhi-NCR region.
To meet the country’s demand for 5G equipment, telecom giant Ericsson plans to expand local production capacity. Similarly, Apple Inc has made the decision to manufacture its iPhone 14 in India. Amazon is also following suit, announcing plans to set up its first production line for the Fire TV Stick in the country.
India received USD 44 billion in Foreign Direct Investment (FDI) inflows in 2021
The Challenges of Doing Business in India
Despite progress made by the ‘Make in India’ programme and other incentive programs, fundamental economic issues such as demographic diversities, language and culture, and poor infrastructure persist and continue to curtail growth. Doing business, although perhaps now easier, is not without its challenges.
When it comes to considering India as a sourcing destination, challenges on the ground include how and where to source from and how to ensure schedules, quality, and relationship management. The people of India tend to value commitment and personal relationships and place them above business profit or loss. Therefore, nurturing the supplier/client relationship and building mutual trust is a business imperative. As we state in Recognising India’s Supply Market Potential And Top Tips For Effective Sourcing, the keys to success are to keep an open mind and identify and appreciate the many cultural contrasts.
Challenges are to be expected in any evolving global supply market. However, as big brands have begun to appreciate, India holds much promise and plenty of opportunity. Although the country has yet to reach its full potential, bolstered by its inherent competitive advantages and the many schemes and programmes incentivising growth and abolishing bottlenecks, it has poised itself to become a global manufacturing powerhouse.
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