The silver lining behind India’s supply chain disruption
- Aug 6, 2020 | Divita S Gupta
The novel Coronavirus pandemic has pressed pause on trading and business disrupting supply chains across the world. From halting production of goods to shortage of raw materials, most businesses in India who have been dependent on imports from countries like China are now bearing the brunt of an economy on the verge of collapsing.
Experts have reckoned the impact of the Coronavirus on the supply chain industry is somewhere on the lines of being hit by a tsunami and most have never experienced an economic situation similar to the one caused by the pandemic. Nearly 55% of electronics imported by India originate from China. The nationwide lockdown drastically reduced this number to 40%. Moreover, China is India's third-largest export partner for export of raw materials like organic chemicals, mineral fuels, cotton etc. Another pressing point of concern is for India’s pharmaceutical sector which imports 70% of active pharmaceutical ingredients from China.
But even in time when the world is struggling, Indian industry biggies are speaking of the rare opportunity that has presented itself in front of India to become the global hub for supply chain operations.
Cost efficiency clubbed with a plethora of distributors is one of the fundamental requirements for a successful supply chain operation. China has been leading the global supply chain sector for years because of inexpensive pricing, fast delivery and a vast ocean of options. But in light of the pandemic, the new normal will look into other factors besides cost. Experts believe that COVID-19 is likely to accelerate the movement of exports away from China. This void can be filled with India giving it the opportunity to become a key node in the global manufacturing and logistics value chain.
At present, China’s cost advantage seems to be declining and the difference between Indian and Chinese costs is less than 5%. But that small difference doesn't seem to bother a lot of foreign companies looking to set up alternative manufacturing bases in countries other than China. Most recently, Samsung relocated its 30 year old manufacturing base from China to India.
Now is the time for India’s private sector and the Centre to work together to present India as a viable alternative to China. This means identifying the needs of business segments, chalk out new export opportunities and focus on indigenous manufacturing. The Centre on its part needs to look at providing financial incentives to MSMEs to encourage manufacturing. They also need to introduce new tax reforms to encourage more manufacturing start ups.
It is at a time like this that India can work on capturing potentially 40% of their competitor's market share by looking at indigenous production of goods, not just furthering the country's Make in India campaign but also becoming the supply chain network for the world. Experts believe India has the potential to double their exports to the USA as an alternative to China as early as 2025.