How India Stands to Gain from Post-COVID Reconfiguration of the Global Supply Chain

The COVID-19 pandemic has exposed the risks of overdependence on a single vendor or even a single geography.

November 10, 2020

Manufacturers across the globe have realized the need to re-evaluate their supply chain strategies.

As per a recent report from KPMG, India is an attractive destination to fill in the supply chain void.

Infrastructure growth, supportive policies, and logistics can further strengthen India’s position.

"Aspire - A Scheme for Promotion of Innovation, Rural Industries and Entrepreneurship” is a radical step in empowering MSMEs.

The COVID-19 pandemic which led to shutdowns, sealed borders, and travel restrictions across the globe demonstrated the need for businesses to rethink their supply chains. One of the biggest learnings for manufacturers from the COVID-19 crisis has been the need to diversify their supply chains. 

As the risks of overdependence on a single vendor or even a single geography become apparent, manufacturers across the globe have realized the need to re-evaluate their supply chain strategies to mitigate risks arising from any crisis, natural disaster, or geopolitical issues. Diversifying the supplier base can also create a marketplace effect to help get material at the most competitive rates, to help optimise costs.

As per a recent report from KPMG, emerging economies such as Thailand, Vietnam, Malaysia, Indonesia, Philippines and India are seen as attractive sourcing destinations for multinational companies to relocate their global supply chains. 

The report also talks about factors that make India an attractive destination to fill in the supply chain void. India has several enabling factors that make it suitable as an important part of the global supply chain. The KPMG report mentions attributes such as a diverse business landscape, skilled workforce, and large domestic market. In addition, India’s robust GDP, large English speaking population, strong macroeconomic indicators, and a stable government have also worked in India’s favour. On the policy front too, several initiatives to liberalise FDI have helped bolster India’s position as a promising player in the supply chain. 

In addition, there are several sectoral advantages too. The Indian pharmaceutical industry caters to 62 per cent of the global vaccine supply and is the largest supplier of generic drugs to the global manufacturing industry. The chemical industry in India is growing at a compound annual growth rate (CAGR) of 7 to 8 per cent10 to reach USD160 billion by 2025. The Automotive Mission Plan 2016-26 targets 3X growth for automotive industry and establishes India as a manufacturing base and an export hub. 

Apart from India’s long-term geopolitical stability, there are several factors that will help strengthen India’s position in the future too:

The chemical industry in India is growing at a compound annual growth rate (CAGR) of 7 to 8 percent to reach USD160 billion by 2025.

Infrastructure Growth

The Government has undertaken several measures to improve infrastructure and support growth. The Government has targeted an addition of 175 GW Installed Renewable Capacity to the national grid to aid 100% electrification by 2022. Also, the National Infrastructure Pipeline (NIP) that includes infrastructure projects across various states to receive US$1.4tn over the next 5 years is an important step. Another prominent initiative is the Smart Cities Mission, an urban renewal and retrofitting programme with the mission to develop 100 cities across the country making them citizen friendly and sustainable. 

Supportive policies, taxation and regulations

The Government reduced corporate tax from 30% to 22% to generate revenues and boost economy. Other initiatives include the “Atmanirbhar Bharat Abhiyaan” that provides financial and policy support to the cottage industry, MSMEs as well as other stressed sectors in India. Also, “Aspire – A Scheme for Promotion of Innovation, Rural Industries and Entrepreneurship” was launched by the Ministry of Micro, Small and Medium Enterprises. India implemented a total of 59 regulatory reforms in FY 2018-19. This accounts for about one fifth of all the reforms recorded worldwide. Such measures help boost production in India. 

Logistics Infrastructure

India ranked 44th out of 167 countries in World Bank’s Logistics Performance Index (LPI) 2018 up from 54th in 2014. The Indian Railways received allocation under Union Budget 2019-20 at US$9.25bn.

The government intends to come out with a national masterplan to provide multimodal connectivity across various industrial hubs. This helps cut down logistics cost and improve competitiveness of local manufacturing. 

In the long-term, India has a real opportunity to emerge as a reliable and consistent player in the global supply chain.