Supply chain disruption has become crucial for world economy growth. It accounts for 40 percent of world trade. Resultantly, it has been the main drag for global growth. China is the world factory for supply chain manufacture and hub for world trade. The COVID 19 pandemic inflicted a hemorrhage to China manufacturing, with world growth plunges. World GDP growth declined to 3.2 percent in 2022, from 6 percent in 2021. It is expected to slip further to 1.3 percent in 2023, according to the IMF.
Business in supply chain concentrate mostly in developed nations. At the regional level, East Asia (mainly China) and South East Asia (mainly ASEAN) are the major suppliers of supply chain. They account for two-third of developing countries exports of supply chain to developed nations.
Supply chain disruption and geopolitical tensions led many TNCs (Transnationals Corporations) to shift supply chain destination from China. Japan was pioneer to diversify supply chain destination from China by launching Supply Chian Resilience policy .
Initially, Thailand, Vietnam and Malaysia were the targeted nations to diversify for investment and manufacturing supply chain. Recently, India was added to the attraction.
“India can be the bigger winner in the supply chain shift from China”, according to Nikkei Asia. It said, “ When India and USA worked together on semiconductor and critical materials, it helps the world in making supply chain more diverse.”
Factors, which attributed to the upturn in India as an alternative destination for supply chain, were sustainable growth in GDP, larger pool of working population, improvement in the logistic performances and policy initiatives in manufacturing of new industries.
Though, in some sections of think tanks, China has been hyped for a bounce back in manufacturing, concerns still hovers for its assured growth. China’s policy makers are facing daunting task to project an assured growth in the wake of persistent vulnerability in the property industry, faltering currency and weak global demand for its manufacturing goods, according to Reuters. Though JP Morgan raised the forecast of China’s GDP at 5 percent in 2023 from its earlier estimate of 4.5 percent, a durable growth is far from sight.
Against this backdrop, India’s sustainable growth assured a strong template for investment in manufacturing supply chain. From the current level of 5th largest economy, India is poised to become the 3rd largest economy in the world by the end of this decade, according to S&P and Morgan Stanley. India is set to overtake Japan and Germany in the trajectory of growth.
A persuasive example for India’s growth to overtake China is the Japanese investors performance in India. Even though India accounts for one-fourth of Japanese companies in China, Japanese companies in India performed better than China. According to a survey by JETRO, the number of Japanese companies making profits in India increased in 2022, in contrast to fall in number of Japanese companies in China making profits. The survey revealed that 71.9 percent of Japanese companies in India surveyed reported profits in 2022, against 61.5 percent in 2021, whereas in China 64.9 percent Japanese companies surveyed made profits in 2022, against 72.2 percent in 2021. These demonstrate the downfall of Japanese investors’ attraction in China.
India pitched a noteworthy attraction as an alternative in supply chain manufacturing. In recent years, various policy measures, including both domestic and external, were adopted to increase India’s potential for manufacturing.
First, India improved in World Bank Logistic Performance Index. It jumped up by six points to 38 in 2023 from 44 out of 139 countries. In October 2021, India launched Prime Minister Gati-Shakti National Mater Plan and in September 2022, it launched National Logistic Policy. In Gati-shakti programme, India plans for making 200 new airports, heliports, water aerodromes to support aviation. Both gave emphasis on more efficient mode of transportation, improve time spending by cargo at ports and airports.
Second, India emerged 2nd in Global Manufacturing Risk Investment Index in 2021, according to Cushman & Wakefields. It has overtaken USA in manufacturing risk . According to Julie Gerdeman, the CEO of Everstream, supply chain risk management platform, “India has a large labour pool, a long history of manufacturing and government support for boosting industry and exports. Because of these, many are exploring whether India is viable alternative to China”.
Third, FDI flow is an important barometer to gauge power of manufacturing. Countries like Vietnam, Thailand, Malaysia, Singapore and Philippines are behind of India in FDI flow. FDI in most of these nations was less than half of India during past three years. In 2022, FDI flow in India amounted to US$49,355 million, as compared to US$17,909 million, US$10,034 million, US$16,940 million and US$21,968 in Vietnam, Thailand, Malaysia and Indonesia respectively, according to World Investment Report, 2023.
Fourth, PLI scheme (Productivity Linked Investment) pinned a new hope for manufacturing growth in supply chain. Launched three years ago, it has drawn several success stories, which can be gauged to outnumber China.
For example, FDI soared in manufacturing in India. It increased by 76 percent in manufacturing sector in 2021-22 over 2020-21. Sectors, which attracted more FDI under the scheme, were medical appliances (91 percent ), drugs and pharmaceuticals (46 percent) and food processing industries (26 percent).
The scheme led a boost in value addition in mobile phones manufacturing. India peered 20 percent value addition in mobile manufacturing within 3 years, against Vietnam achieving 18 percent value addition in 15 years , according to an official Press Note of government of India.
Resultantly, production of mobile phones made a galloping growth. From merely US$ 3 billion in 2014-15, manufacture of mobile increased to US$ 44 billion in 2022-23 , an increase by 1,700 percent. Export of mobile phones increased from US $ 0.26 billion in2014-15 to US$11 billion in 2022-23, an increase by 6000 percent.
This demonstrates how India has emerged a power for manufacturing of supply chain and a major challenge to China.