How can India be part of global supply chains?

By: Mr. Lalit Das, Founder and CEO, 3SC Analytics


India is on the verge of becoming a model economy for the rest of the world. The world is watching India’s determined and constant efforts to transform the country into a global leader. On the international stage, India is paving the path to becoming a vital pillar in the global supply chain, positioning itself as a desirable alternative destination for global businesses through initiatives such as the “Supply Chain Resilience Initiative (SCRI).”

Supply Chain Resilience Initiative (SCRI)

The Supply Chain Resilience Initiative (SCRI) was officially inaugurated by India’s, Japan’s, and Australia’s trade ministers. The SCRI aspires to build a virtuous cycle of supply chain resilience in the Indo-Pacific region, with the goal of achieving robust, sustainable, balanced, and inclusive growth. In the context of international trade, supply chain resilience is a strategy for ensuring that a country’s supply risk is spread among a number of supplying countries rather of relying on just one or a few.

The importance of this strategy lies in unexpected events — whether natural, such as volcanic eruptions, tsunamis, earthquakes, or even a pandemic; or situations such as a regional armed conflict. These events disrupt supplies from a particular country and intentional trade halts, could have a negative impact on economic activity in the destination country.

The objective of this initiative is to develop the Indo-Pacific into a “economic powerhouse” by attracting foreign direct investment. It also aims to develop a relationship between partner countries that is mutually beneficial and to devise a strategy for expanding the existing supply chain network. It will assist India in improving its manufacturing competitiveness and increasing its share of global trade. In order to achieve this goal, infrastructure must be built.

These advancements present India with a once-in-a-lifetime chance. Large firms are prompted to explore specific investment destinations by strategic ambitions of major powers, but real investment decisions are based on detailed analyses of potential rewards and dangers. For the sections of the global supply chains that India wants, it would have to get this calculation right. As a result, in addition to getting macroeconomic fundamentals right and boosting our ranking in the ease of doing business, sensible industrial policies and investment promotions are required.

The COVID effect on the Supply Chain industry

India has the potential to emerge as the preferred destination during and beyond the COVID-19 pandemic. This will be possible owing to the newly defined objectives of global corporations and countries to decrease supply chain risks in the long term and fix broken value chains in the medium term.

Every company that relied on foreign supplies has been severely harmed as a result of supply chain interruptions. It is becoming clear that the supply chain techniques that were so popular prior to COVID-19 are no longer viable. For example, lean or ‘just-in-time’ inventory strategies, which require producers to keep a minimum amount of raw material on hand, may need to be reevaluated. As a result, there is a pressing need to re-engineer global supply chains, which may necessitate re-examining key assumptions, diversifying industrial bases, altering trade channels, and shifting investment destinations.

India has a unique chance to emerge as a preferred business destination during and after the COVID-19 pandemic, as companies try to restore their broken value chains in the immediate times and decrease supply chain risks in the long term.

India’s Advantages as a Business Hub

India is a natural alternative to fill the supply chain vacuum because it is a stable country with a slew of favourable conditions for attracting investments. India’s prime minister has articulated his goal of a “Self-reliant India” in response to this opportunity. The country’s argument is made stronger by its broad corporate landscape, competent labour, and large domestic market with rising disposable incomes. These factors coupled with the relatively inexpensive labour easily available in the country will further help in driving its growth as the international business hub.

New Framework for SEZs

India can benefit from a new legislative framework for SEZs (Special Economic Zones) with duty-free imports by building a parallel environment for manufacturing success and becoming a member of global supply chains. The SEZs have produced positive outcomes in IT-related services, but only modest results in manufacturing. One of the main reasons for this is that the private sector was responsible for the construction of SEZs. The majority of them lacked the necessary size to compete in global markets.

The SEZ’s competitiveness as an investment destination will be enhanced by expressway connectivity to the National Highway network and, through it, to ports and airports. The new DFI (Development Financial Institution) should be able to offer the long-term financing required for such ambitious projects. It would also be necessary to supply infrastructure such as lower-cost power, common effluent treatment facilities, skill development centres, and international testing along with certification facilities. The most significant adjustment required would be to allow sales of SEZ-produced goods to the domestic market, with duties levied at the lowest rate applicable to imports from any trading partner, as well as value-added requirements under any trade agreement.

Summing Up

Because of the way the ‘New Normal’ wave is forming, India’s (or any country’s) economy is moving towards recovery. It will soon be catapulted and subsequent development if the possible prospects are welcomed and a well-thought-out plan of action is established and efficiently implemented. India can present itself as an attractive investment destination for investors throughout the world, and the credit goes to its solid macroeconomic fundamentals, favourable demographic dividend, enhanced ease of doing business (EoDB), and availability of resources for ramping up manufacturing facilities. This would necessitate the government, local governments, and industry maximising this potential. India is on its path to become a part of the global supply chain and say the government’s support will further help the nation in achieving this objective.