The pandemic’s impact on economies and supply chains across the world has been secular. However, coming out of the pandemic, each country will chart its own course of economic recovery. The vast disparities in national incomes, population sizes and growth rates, and technology adoption bring unique challenges to each country. Under such circumstances, India’s manufacturing sector will have to commit itself to the mission of development and nation-building with a focus on being self-reliant.
Simplifying India’s Exposure to Global Supply Chain Risks and Self-Reliance in Numbers
The takeaway for policymakers and corporate captains is to make Indian manufacturing agnostic to the influx of global supply chain disruptions, fiscal headwinds, tariff wars, and cross-border coordination uncertainties. Imports of goods and services account for 21% of India’s GDP. India’s dependence on imports from China has increased from 14% to 21% this year. Research suggests that India can reduce its exposure to Chinese imports in FY22 by USD 8.4 billion, accounting for 17.3% of India’s trade deficit with China and 0.3% of India’s GDP. Forty sub-sectors in Indian manufacturing offer an opportunity for import substitution through a renewed focus on the greater local capacity utilization of Indian manufacturing. These sub-sectors include chemicals, automotive, agro-based industries, pharmaceuticals, consumer electronics, and leather goods. Complete localization of manufacturing in these sub-sectors alone can unlock cost savings worth USD 33.6 billion moving forward. However, achieving the turnaround from being a market to being a global manufacturing hub calls for a migration from the point of consumption to the point of manufacturing in the supply chain.
The Agenda to Make India a Manufacturing Hub and Achieve Self-Reliance
The following mix of economic reforms, policy measures, and corporate initiatives can steer the Indian economy towards being a manufacturing hub and achieving self-reliance:
- Focus on Ease of Doing Business in Manufacturing Sector to Speed Up Growth
India’s quantum leap to the 63rd position in the Ease of Doing Business rankings bears testimony to how far we have come. Now is the time to take the next steps. We need to bring agility and visibility to the procedures covering the starting of a new business to the compliance with regulatory requirements such as land acquisition, getting clearances for capacity expansion and obtaining permits and licenses. A green channel integrating diverse regulatory agencies and stakeholders in manufacturing will reduce project overrun costs, and unclog the entire supply chain ecosystem. The digital integration of the high segmented business regulatory framework will do to the manufacturing supply chain ecosystem what the GST has done to the indirect taxation ecosystem: integrate India into one nation, one tax, and one manufacturing hub.
- Incentivize Technology Enablement to Make Procurement Cost-Efficient
Decisions in the manufacturing sector vary along binary options to make or buy. Cost-efficient procurement at each level in the supply chain is essential to generating a desirable bottom-line impact for large OEMs and end consumers of manufactured goods. Cost-efficient procurement is the key to stimulating the demand for goods made in India. One of the easiest ways to achieve this is technology-enabled procurement. Procurement decisions in OEMs and MSMEs’ high offices both have to migrate away from intuition and towards insights. The Indian deep tech industry has the credentials to offer artificial intelligence, machine learning, and big data offerings to enable strategic-sourcing based on supplier KPIs of cost, quality, and agility.
- Boost Local Manufacturing Growth by MSMEs
Identifying locations that offer local sourcing opportunities and leveraging existing MSME capabilities in manufacturing to support large OEMs is the key to enabling greater capacity utilization. Doing so will allow faster procurement of industrial supplies like raw materials, natural resources, and consumables for OEMs and create opportunities for MSMEs to grow and create jobs for the local population. Doing so will allow large OEMs and MSMEs to partner in making economic growth more inclusive and diverse.
- Reform Investment Caps for MSMEs to Drive Investments
The investment caps defining the brackets of micro, small, and medium-sized enterprises in India truncate actual investment levels and create opportunities for manufacturing MSMEs to siphon off capital into other sectors. Therefore, these investment brackets need to be expanded. Doing so will aid more significant capital expenditure on expanding plant capacity and enhance MSMEs’ capabilities to fulfill OEM orders of greater scope and size.
- Bring Greater Connectedness to the Supply Chain
For Indian manufacturing to be self-reliant, both the corporate and government sector enterprises will have to focus on zeroing down the supply chain gaps. They need to envisage a four-tiered design to create a National Supply Chain Network that runs through the district, state, country, and global levels. Corporate OEMs will have to ensure connectivity between warehouses, manufacturing plants, suppliers, and end consumers across these four levels to maintain business continuity and keep the supply chain running smoothly. The government sector can pitch in with the logistics infrastructure to ensure physical connectivity among these four layers in the supply chain for effective first-mile, mid-mile, and last-mile journeys of manufactured goods. Finally, supply chain tech enterprises will need to provide digital connectivity to the supply chain through the internet of things (IoT), robotic process automation (RPA), and cloud computing platforms to scale up transactions.
- Shift Towards Outcome-Based Budgeting for the National Infrastructure Pipeline
The proposed INR 100 crore National Infrastructure Pipeline speaks highly of the current governing dispensation’s commitment to Indian manufacturing on the fiscal policy front. However, for the project to realize the desired objectives of augmenting growth in manufacturing and self-reliance, state-owned enterprises and special purpose vehicles (SPVs) for managing large scale projects will have to ensure fiscal prudence and on-time delivery of projects. A switch towards outcome-based budgeting will enable SOEs and SPVs to make infrastructure building projects more cost-efficient and attract greater interest from OEMs in the EPC vertical for greenfield investments through the FDI and PPP routes.
Self-Reliance and Insulating Indian Manufacturing from Global Disruptions
As the Indian economy looks to walk up its way to economic recovery, Indian manufacturing will have to take the driver’s seat. Supply chain connectivity, both digital and logistical, will catalyze the transformation. The writing is there on the wall for everyone to see. We need to strategically redesign our supply chain to allow Indian manufacturers to plug into domestic and global trade opportunities but insulate them from further disruptions.