India visibly reaping dividends from global supply chains diversification

New Delhi [India], June 2 : Faced with supply chain disruptions particularly since the Covid pandemic hit in 2020 and subsequent flare up of geopolitical tensions that still continue, many leading global companies in particular those that are into manufacturing space, are diversifying their operations across regions. These visible trends of business diversification are basically to reduce risk and increase flexibility.
Geopolitical headwinds, including the two-year-long Ukraine-Russia conflict, the latest Israel-Hamas war, Houthis' attacks on shipping lines, only drive home the point that there are exacerbating global tensions on supply chains.
Geopolitical tensions or for that matter any potential threats are directly proportional to supply chain costs.
For companies in such situations, it means exploring emerging global supply chain regions for diversification, and India, given its political stability and huge market opportunity with dynamic workforce, a steady rise in income levels, is eyed as one of the best places to set up manufacturing bases.
The country continued to remain the fastest-growing major economy and is poised to maintain its growth trajectory going ahead. India's economy grew 8.2 per cent in 2023-24, 7.2 per cent in 2022-23, and 8.7 per cent in 2021-22, respectively.
Amit Goel, Co-Founder and Chief Global Strategist, Pace 360, an asset management company, said, "India has been well-positioned to benefit from the recent shifts in global supply chains. The pandemic exposed vulnerabilities in over-reliance on certain regions for production, and many companies are looking to diversify."
"India boasts a massive and growing domestic market, making it attractive for companies to set up production facilities and cater to local demand."
Goel also believes that production-linked incentives are poised to boost domestic manufacturing capabilities.
The size of India's GDP is currently ranked 5th, after the US, China, Germany, and Japan. It overtook the UK in 2022. Just a decade ago, Indian GDP was the eleventh largest in the world.
Currently, India's GDP is estimated to be around USD 3.7 trillion. India eyes USD 5 trillion in the near term.
In brief, India has what it takes to attract global investments. The government is increasingly opening number of sectors, including some key ones, to foreign investment, which was not the case earlier.
Citing that India has the second-largest English-speaking population globally and which focuses on STEM education, with over 2 million graduates annually, a Forbes news article recently, noted that this combination of an increasingly well-educated workforce and its strategic location near the Middle East, Europe, and West Africa, to Southeast Asia and East Asia, bolstered by well-established sea routes, make India an ideal place to do business.
The Forbes article, titled 'India's Rise In The Global Supply Chain', asserted it believes that India is poised to be a significant centre of commerce moving forward.
Companies like Foxconn and Apple, besides many well-known electronics, aerospace, and medical device companies are scaling up India operations, the article added, attributing them to the government's incentives and the latest policy on electronics manufacturing.
In 2017, Apple started manufacturing iPhones in India. The Production Linked Incentive (PLI) scheme by the Central government, among others, is likely to have attracted several gadget makers, including Apple, to set shop in the country.
Apple's iPhone exports have reportedly surged from USD 6.27 billion in the fiscal year 2022-23 to USD 12.1 billion in 2023-24.
In 2017, Samsung announced Rs 4,915 crore of investment to double the capacity of its Noida plant. And exactly a year later, the company inaugurated its new mobile phone manufacturing facility. Samsung India also launched its 'Make for the World' initiative, whereby it aims to export mobile handsets produced in India, to overseas markets.
As part of its Atmanirbhar and Make in India plan, the government launched production incentive (PLI) schemes in varied sectors, including electronics, to make Indian manufacturers globally competitive, attract investments, enhance exports, integrate India into the global supply chain and reduce dependency on imports.
"The integration of India into global supply chains and its extensive connectivity with regions across the globe is reflected in the upward trajectory of our exports," said Sanjeev Agrawal, President, PHD Chamber of Commerce and Industry, an industry body.
With the level of hand holding by the government, India offers opportunities for global expansion across various sectors including semiconductor industry, defence manufacturing, aerospace, among others. Businesses are diversifying their manufacturing industries, said Agrawal.
Moving ahead, the government is also investing heavily on defence and aerospace manufacturing, with several defence hubs being set up. Indian defence PSUs have accumulated tremendously high returns on equities in the past few years, benefiting for the fresh orders.
Ashish Saraf, Country Director, Thales India, a company that is into defence and aerospace, said in 2023, it sourced over Rs 2,000 crore worth equipment and technology services from India to serve their global businesses.
"India's emerging strength in the global logistics supply chain, particularly in the mobile, semiconductor manufacturing, aerospace, and defence sectors, is a testament to its resilience and determination," said Saraf.
"Through our expanding presence in India, growth of our engineering competence centres, and strategic partnerships with local suppliers, we are actively bringing global innovative technologies to the country. We realise the immense potential in India's widely spread and growing supply chain, and that's why we have been increasing our supplier base in country," Saraf added.
The central government has set the target of achieving indigenous defence manufacturing worth Rs 175,000 crore including defence exports of Rs 35,000 crore by the year 2024-25.
Notably, many global companies have either shared, or showed intent, to share critical defence and aerospace knowledge with India.
India's defence exports have touched a record Rs 21,083 crore (about USD 2.63 billion) in the financial year 2023-24, with a growth of 32.5 per cent over the last fiscal when the figure was Rs 15,920 crore. The recent figures indicate that the defence exports have grown by 31 times in the last 10 years as compared to 2013-14.