Could India Emerge as a Manufacturing Giant?

India is on the up. The nation is positioning itself as a major manufacturing hub and by 2030 will have the capacity to export $1 trillion in goods.

Now, we’re seeing countless companies move to the Indian subcontinent to diversify their supply chain, with Apple announcing their latest investment this week.

But this growth hasn’t appeared in a vacuum. India, and Vietnam, have both been steadily attracting manufacturing opportunities away from China due to their declining competitiveness.

China’s approach to the pandemic has hurt domestic and international supply chains. As a result, businesses are looking for ways to minimise future disruption. India is just one option, and it’s proving a lucrative one.

China’s dominance comes to an end

For decades, businesses have outsourced their manufacturing to China. Their labour standards and expansive markets have been a blessing to international businesses who have long enjoyed the mutually beneficial relationship. But that relationship was put to the test during the pandemic.

Supply chain chaos was accepted during the pandemic. Customers understood why their products were delayed. But now most nations have waved lockdowns goodbye while China still maintains their zero-Covid policy. This approach means that lockdowns are still implemented whenever there is a number of confirmed covid-19 cases announced in a single location.

That’s what happened in Zhengzhou, where as many as 300,000 employees make iPhones and other Apple products. An outbreak left production at a standstill. Staff were unhappy, and in November the area was hit by huge protests.

Workers weren’t being paid and orders were unable to be processed. As a result, Apple began to look at other corners of the world for their manufacturing.

Emerging nations are fertile ground for investment

India is a good alternative for manufacturing for a number of reasons. Perhaps most notably though is that labour is cost-effective. China’s long standing manufacturing success meant that labour laws in the country improved. Wages were increased and a more robust set of health and safety standards were introduced.

India, and Vietnam, are not at this stage in their industrialisation yet. Which means overheads are lower for brands outsourcing manufacturing there. This will come at a cost though, specifically in the form of a lack of talent. And not just in the factories, but also in the supply chains.

China’s long reign as top international manufacturer gifted them an well-designed supply chain with routes mapped out around the world. Emerging nations don’t have the same experience and will have to build the infrastructure to facilitate the forecast level of trade.

But it seems businesses are willing to take the risk. Not only because of the affordability of these new hubs, but because current China-US relations suggest further disruption. Apple is already claiming that in 5 years India will handle 35% of all manufacturing. And that’s not including the 20% of iPad and Apple Watch production they’re planning to move to Vietnam.

India to engage in state-sponsored intervention

To secure more investment, Prime Minister Narendra Modi has been championing his country’s disruptor status in manufacturing. He’s well aware of what the sector’s success could mean for his nation having served as a chief minister of Gujarat for nearly 13 years before he became prime minister.

Gujarat is a coastal state where manufacturing contributes to 30% of the state’s GDP. That level is comparable to China’s and explains why since becoming prime minister Modi has repeatedly cut regulations and created incentives for foreign businesses. This includes fast-tracking permissions and handholding investors in putting up capacities.

He’s also approved a programme to develop a semiconductor and display manufacturing ecosystem that will offer up to $10 billion in the form of capital subsidy to potential investors.

So far, India has momentum. But it isn’t the only nation trying to cash in on China’s corporate exodus. What’s more, China isn’t likely to take these losses lying down. Commentators are already suggesting the ruling Chinese Communist Party could back-down on their zero-Covid approach.

India must move, and quickly, if they hope to sustain these wins. And here at Cardinal we’re able to support businesses looking to invest. If you have any queries regarding subcontinent supply chains or just your current cargo needs, then please get in touch on our contact form.