India’s rise in the global supply chain

Many leading supply chain companies are diversifying their supply chains across global regions to reduce risk and increase flexibility in costs and lead times. International instability doesn’t help. The year 2024 brings with it many geopolitical headwinds that will only exacerbate global supply chain tensions. Based on research by Wall Street Journal, Geopolitics directly increases supply chain costs. As a result, many companies are expecting further shock waves as tensions rise in critical markets.

For supply chain leaders, this means exploring emerging global supply chain regions for diversification. India is one of these promising new regions. The International Monetary Fund estimates that by 2027, India will be the world’s third-largest economy with a GDP of $5 trillion, overtaking Germany and Japan. In addition, India has the second-largest English-speaking population in the world and is focused on STEM education, with over 2 million graduates each year. This combination of an increasingly skilled workforce and its strategic location close to the Middle East, Europe and West Africa, as well as Southeast Asia and East Asia, as well as well-developed sea routes, make India an ideal location to do business.

India’s new role in the global supply chain

According to India Review, “India is emerging as a reliable alternative destination for manufacturers and supply chain diversification due to its large labor and consumer base, low operating costs and connections to key international markets.” India is also emerging due to its strong economy, relative ease of doing business and an increasing number of sectors open to foreign investment. I believe that India will be a major trading center in the future.

Indian government incentives to support manufacturing

Companies like FedEx
FedEx
Foxconn, Apple
Apple
, and many well-known electronics, aerospace and medical device companies are expanding their operations in India. One reason for this is probably the incentives. The National Policy on Electronics (NPE), launched in 2019 to position India as a global hub for electronics, promoted the development of core components such as semiconductor chips, graphics chips, motherboard chipsets and other computing devices. This led to improved competitiveness of the electronics industry worldwide. Next, the Production Linked Incentive (PLI) program for large-scale electronics manufacturing provided a financial incentive to boost domestic production and attract significant investments in electronic components and semiconductor packaging. These incentives have since been expanded to 14 additional industries.

Industry focus areas for manufacturing in India

India’s manufacturing sector has witnessed significant growth and diversification in recent years, with various sectors playing a crucial role in the country’s economic development. From aerospace and defense to medical devices, automobiles, electronics and space technology, India’s manufacturing ecosystem is as diverse as it is dynamic.

Aerospace: India is an ideal location for manufacturing aircraft, spacecraft and related components. The aerospace industry sector has been growing steadily, focusing on military and commercial applications. The industry benefits from a skilled workforce, technological advances and government initiatives to promote aerospace manufacturing. India’s aerospace manufacturing capabilities are gaining increasing recognition at the global level, with collaborations and partnerships with international aerospace companies contributing to the growth of this sector.

Medical technology: The medical technology (MedTech) sector is growing rapidly. Boston Scientific opened its first facility in Gurugram in 2016.
Boston Scientific
, a US-based company, opened its second research and development center in Pune in 2023. India is home to the company’s second largest research and development centers outside the United States of America. India’s medical device manufacturing sector has also grown. Companies like Trivitron Healthcare and Opto Circuits India Ltd. produce a wide range of medical devices and devices for healthcare providers worldwide.

Automobile: India is emerging as a major player in the global automobile industry. Companies such as Tata Motors, Mahindra & Mahindra and Maruti Suzuki manufacture a wide range of vehicles, from cars and motorcycles to commercial trucks and buses.

But this is just the beginning. India is also focused on developing a number of robust plans to strengthen international trade, including the Make in India initiative.

Make in India program

In 2014, Indian Prime Minister Narendra Modi launched the Make in India programme to strengthen India’s position globally. The stated purpose of the campaign is to facilitate investment, promote innovation, enhance skill development, protect intellectual property and build world-class manufacturing infrastructure. The resulting job creation and increase in foreign investment directly impact 25 identified sectors, including railways, defence, insurance and medical devices.

Why companies are relocating to India

This webinar provided useful information on “Why India is the next manufacturing hub” and focused on incentives that make India an attractive choice for foreign companies seeking global trade. Key takeaways include:

1. Indian government– The panelists agreed that both the central and state governments are doing everything they can to incentivize growth in the manufacturing sector. If anything, states compete for foreign investment.
2. Focus on manufacturing– Panelists also agreed that the focus on manufacturing is “outdated” and that the next government will continue to invest here.
3. Investments in infrastructure –India is already investing heavily in infrastructure, and this trend will continue to accelerate.
4. Targeted investments in critical areas—Some industries have special economic zones, particularly around semiconductors and manufacturing facilities.
5. Bureaucracy or business-friendly—Tensions remain between the old bureaucracy (very slow) and Invest India, which focuses on making it easier to do business in India.
6. Indian Education“The top schools produce employable talent, but there is a big gap between the next level schools.” On the other hand, there is a high level of collaboration between industry and universities to close this gap.

Changing consumer demand

Part of India’s manufacturing expansion (particularly in electronics) is being driven by changing consumer demand. Customers want higher quality products with advanced features and functions at the best price. India offers more options (especially in electronics) with savings that are passed on to the consumer. But the aerospace industry is in a unique position to win in India. With a well-established aerospace infrastructure, manufacturing partnerships (it’s the relationships, right?) and significant incentives, big-name companies are investing heavily in India.

Lower tariffs and overall costs

Lower tariffs are one of the reasons companies choose India (3% vs. 30% in China), but India’s lower overall costs are another attractive factor for international companies considering setting up shop in the region. India offers lower labor costs than many other countries and is a strategic location for trade in Southeast Asia, the Middle East and Europe. Additionally, India has several trade agreements that reduce tariffs and enable smoother and more cost-effective import and export processes. Finally, logistics efficiency and lower transportation costs further reduce the overall cost of ownership for companies operating in the region.

The central theses

India is rapidly becoming a major player in global manufacturing, and according to Business Standard, this role will only increase in the next few years. With lower tariffs, lower overall costs and special incentives for many industries, India is a solid option for diversifying your global supply chain. When I speak with supply chain leaders, I realize that success lies in being able to operate flexibly in a changing global economy – often across borders. India is a great place to start.