Supply chains around the world are undergoing major transformation due to the geopolitical realities of our times, and the rapid adoption of e-commerce presents a unique opportunity for India to become a leading manufacturing and supply chain hub.
The Covid-19 pandemic caused several bottlenecks in global supply chains, leading to logistical delays, export restrictions accentuated by trade conflicts and the Ukraine war, prompting a new wave of reshoring and diversification of supply routes and manufacturing localisation.
While China continues to be critical to global value chains, companies are gradually shifting their focus to countries like India, which is ahead of China in terms of attracting foreign direct investment (FDI) in the textiles and apparel industries. In 2019, India was the largest recipient of FDI flows in South Asia, not including China.
There are several reasons why India can become a supply chain leader. Firstly, there has been a concerted effort by the Indian government to develop infrastructure including road, rail and port connectivity, as the country has the world’s second largest road and rail network. India has also ramped up its focus on improving logistics with a 15-20% reduction in transport costs and travel time following the introduction of the Goods Services Tax or GST nationwide.
In view of India’s logistics sector which is expected to grow from a USD200 billion market in 2020 to USD320 billion by 2025, the Indian government aims to further strengthen supply chains with the National Logistics Policy, which was introduced on September 18, 2022. When announcing the policy, Prime Minister Narendra Modi highlighted how this can “add fresh impetus to India’s manufacturing sector”, adding that India has set up new eco-friendly waterways, 40 air cargo terminals to facilitate exports, 30 airports with cold storage facilities, and 35 multi-modal logistics facilities.
KEY SECTORS IN SUPPLY CHAIN OVERHAUL
Some industries are particularly attractive in India’s efforts to modernise supply chains. These include the pharmaceutical sector – the world’s third largest – telecommunications and smartphone manufacturing, which ranks second globally, the automotive sector (world’s fourth largest) and the chemicals industry (world’s sixth largest).
India is also the world’s largest provider of software outsourcing and solutions by total production value. Automobiles, textiles, electronics, consumer durables and pharmaceuticals have all shown huge potential in terms of transforming India’s manufacturing sector.
WHAT WORKS FOR INDIA
India’s claim to become a well-integrated supply chain market is strengthened by its diversified corporate environment, inexpensive and skilled labour, strong macroeconomic fundamentals, positive demographic dividend, improved ranking ease of doing business, access to vast resources and its expanding market of 1.3 billion people.
As such, it is no surprise that India is drawing attention as an emerging hub for Asian supply chains. In 2021, Australia, Japan and India jointly launched the Resilient Supply Chain Initiative (RSCI) to diversify supply chains by developing well-planned industrial clusters. In July 2022, 18 nations, including India, the US and the EU, unveiled a four-point roadmap for building collective, long-term resilient supply chains.
New Delhi is also upbeat about bilateral trade pacts and Free Trade Agreements (FTAs) with several countries. FTAs are in the pipeline with the UK and Canada, and India has already signed trade agreements with UAE and Australia, furthering strengthening its position as a manufacturing hub. Not to forget – India and the EU have also restarted talks for a comprehensive Free Trade Agreement after nine years. The EU is India’s second-largest trading partner after the US and the second largest destination for Indian exports.
GLOBAL CONFIDENCE IS GROWING
More and more companies worldwide are recognising India’s strengths as a resilient supply chain alternative. Recent developments testify to the growing confidence in India as a manufacturing hub in Asia, such as Apple Inc’s decision to manufacture its iPhone 14 in India.
Other announced plans and investments include Amazon’s decision to set up its first production line for its TV Fire stick in India, Swedish retailer IKEA’s plans for a 48,000 square metre shopping centre in the Delhi-NCR region, and DHL’s stated intention to invest EUR 500 million in India over the next five years. Meanwhile, the government’s major policy thrust is set on making India a global supply chain hub with public schemes that are solidifying India’s competitiveness. These include:
- The SagarMala Project for port development
- Reformed tax system under the Goods and Services Tax or GST
- Comprehensive labour reforms
- The National Infrastructure Pipeline
India has unveiled a USD27 billion PLI scheme for 13 sectors to help integrate Indian companies into the global value chains. The National Infrastructure Pipeline hopes to strengthen infrastructure connectivity and lower logistics costs significantly, and the corporate tax rate for new manufacturing has been reduced to 15%.
These are all positive indicators for India which is strategically well-placed to become an important manufacturing centre for Swedish companies, too.
ROADMAP FOR SUPPLY CHAIN INTEGRATION
Going forward, governments and corporates will have to ensure that supply chains meet new customer expectations for personalised products and services. Supply chains will need to be customer-centric requiring greater use of digital technologies and integrating those technologies with physical infrastructure.
In this context, Sweden can help India build up its technological know-how and capabilities.
Developing sustainable infrastructure will be crucial and also requires stronger investments in logistics networks. Workforce upskilling, innovation, sustainability and policy-making are all key ingredients in the push to develop resilient supply chains in India.
Several Swedish multinationals such as IKEA, Volvo and Ericsson are already betting big on India. The telecoms giant Ericsson is expanding its local manufacturing capabilities to meet India’s demand for 5G equipment. Similarly, IKEA is set to invest around USD 1.19 billion to ramp up its retail presence in the country, while Volvo Cars aims to sell 1,000 EVs in India by 2023.
India may not have reached its full potential yet for investments and growth in manufacturing, logistics and supply chains, but today’s new reality dictated by geopolitics and geoeconomics is undoubtedly changing the playing field. As global companies and brands turn their spotlight on India, other Swedish companies should pay close attention to the new horizon of supply chain opportunities in this thriving market.
Want to know more about supply chain options in India? Feel free to contact us.