India – The Next Supply Chain Hub Post COVID-19

India - The Next Supply Chain Hub Post COVID-19

Over the past decades, most of the global manufacturing has been organised in what is known today as the global value chains (GVCs). For numerous goods, China is at the core of such GVCs – a key generator of high-value products. However, as the pandemic rapidly engulfed nations and disrupted the global supply chain, triggering a massive recession, it raised several questions and exposed the vulnerabilities and dependencies of the business ecosystem. As a consequence, more companies are now actively looking for alternative destinations to venture, diversify their manufacturing and supply chain dependencies. This has led to the very question of Will India Be Able To Seize The Opportunity & Emerge As The Next Supply Chain Epicentre?

The quick spread and aggravation of COVID-19 gave nations brief time to react, constraining them to settle on outlandish decisions. In spite of being entrusted with securing 1.3 billion population, India has scored a perfect 100 on the Oxford University COVID-19 government reaction tracker. Indian government’s proactive measures and agility to respond to the outbreak has been lauded across the world. 

 

What Are India’s Chances Of Becoming A Supply Chain Hub?

The subsequent closure of factories during the pandemic outbreak heavily impacted sectors as diverse as automobile, pharmaceuticals, and electronics across the globe and its repercussion is felt across the entire economic ecosystem, compelling businesses to re-evaluate their strategies.  

India definitely has an advantage of emerging as the next alternative destination of choice – for instance, according to industry experts, the entry-level payroll in India ranges between Rs 12,000 and Rs 15,000, whereas in China the salaries are about three times higher.

Apart from offering comparatively low labour cost, India also comes with competitive operating expenses, special economic zones (SEZs) that allow duty-free exports, and business-friendly regulations and policies. 

Further, the country also has a good consumption demography, stable government, and good startup spirit. India’s ease of conducting business ranking is improving, and the FDI flows seem to be robust. Additionally, India has also started focussing on ramping up its supply chain capability as a countermeasure to combat the pandemic – posing itself as the next supply chain destination. 

Here are some of the reasons why India may emerge as the next supply chain hub: 

Vast Market

India’s rising affluence, increasing digital connectivity, and the consequent shift in consumer behaviour have opened up a vast market, which, initially was untapped to some extent. As per the World Economic Forum, India is predicted to be the 3rd largest consumer market by 2025. The report further emphasised that India’s top 40 cities will form a $1.5 trillion opportunity by 2030, with a chance to unlock nearly $1.2 trillion of spending in developed rural areas. 

Reduced Corporate Tax Rate

To promote foreign direct investment, the Indian government has taken proactive steps, including offering competitive tax rates and fiscal stimulus to boost businesses. As a countermeasure to encourage investment, the government, last year, reduced the corporate tax rate to 25.17%, proving to be a beneficial move for the manufacturing sector. This lower tax rate empowered India to compete with emerging Asian economies like Vietnam, Thailand, and Indonesia. Additionally, as a countermeasure to tackle the economic impact of the pandemic outbreak, the finance ministry announced an immediate release of Rs 18,000 crore in tax refunds to individuals and businesses. 

Promoting Domestic Manufacturing

To boost the economy and domestic manufacturing, India already has several initiatives like the ‘Make in India’ initiative that promotes businesses to produce goods in India. Under the Make in India initiative, the government declared several stimulus for international companies looking to set up their business. Last month, India allocated $6 billion to promote domestic manufacturing, attract investment, capitalise on export-based production in the country. 

Companies Looking To Shift Focus

Post the pandemic outbreak, around 1000 foreign firms are involved in negotiations at several levels with the Indian authorities with at least 300 of these companies actively proceeding with the production plans in sectors as diverse as mobiles, electronics, medical devices, textiles and synthetic fabric. For instance, Facebook’s $5.7 billion investment in Reliance is a reflection of the confidence that foreign companies have in India’s economy and growth.

The Bottomline

The pandemic outbreak and the subsequent global supply chain disruption is expected to turn the focus on India’s rapidly growing market. The government’s focus to attract foreign firms in India is expected to gain momentum as we see more and more companies shift their focus for an alternative supply chain destination.