Make In India: Reinventing India's Supply Chain

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Make In India: Reinventing India's Supply Chain
By
Zubin Poonawalla
GOI's ambitious "Make In India" campaign successfully draws foreign
manufacturing to India, the proposed infastrucure investments will have a
significant impact & lasting consequences for the subcontinent's supply
chain
India is seeking to emulate the success of Japan, China, & other
“Asian Tiger” economies by doubling down on domestic
manufacturing with its “Make In India” campaign. Launchedon the
eve of PM’s landmark visit to the United States last year, the
campaign seeks to encourage manufacturing in the country & attract
international investors & industrialists. The ultimate goal of “Make In
India” is to raise manufacturing’s contribution to the country’s GDP
from 15% to 25%, bringing it more in line with other developing
countries like China (31%) & Korea (35%).
Government is calling on all of India’s ministries related to
manufacturing, from heavy industries to telecommunications, in a
collective push to make the country more attractive & accessible to
foreign investmentors. Currently India is ranked 139th out of 189
countries on the World Bank’s Ease of Doing Business Index. The
proposed investments are largely focusedon reinforcing — & in some
geographies building — a reliable infrastructure to handle the supply

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chain challenges that will accompany a massive influx in
manufacturedgoods.
Though in its early stages, the campaign has already attracted notable
participants. Electronics giants Samsung & Sony have recently
announcedplans to set up manufacturing bases in India. Samsung is
reportedly establishing manufacturing units in the country to
produce smartphones & tablets, with investments estimated to
be between US $500M & US $1B, while Japanese multinational
conglomerate Sony is launching an Indian manufacturing unit “very
soon,”according to Sony’s Indian operations head Kenichiro Hibi.
China’s Ambassador to India Le Yucheng has also said that Chinese
firms are expressing interest in setting up manufacturing facilities in
India; Chinese e-commerce conglomerate Alibaba Group has already
made commitments to serve the Indian market.
The Caution & Challenges of Becoming a Global Export
Powerhouse
As the “Make in India” campaign begins to pick up steam with foreign
investors, international analysts are beginning to voice concerns
about how high the ceiling really is for domestic Indian
manufacturing & the export economy. Aashish Mehta, associate
professor at the Global & International Studies Program at the
University of California, Santa Barbara, cautions that “the sweeping
changes in labor laws, land rules, environment regulations, &
education policy unleashedby the government come with significant
social costs & ultimately may not result in enough good jobs.” He
cites the reality that mechanization & greater competition from other

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developing countries shouldalso be taken into consideration. If the
economic climate surrounding “Make In India” changes, foreign
companies will be sure to relocate quickly. “Investors seem to get this
short-termism,” Mehta quipped. He acknowledges the vital
importance of having a solid manufacturing base but adds that, “It is
just too costly to get wrong.”
Indeed international & domestic factors may conspire to scuttle
Government’s high hopes for “Make In India” over the next decade.
Large scale manufacturing pushes like “Make In India” require a
young population willing to work long hours on factory floors. The
population of workers aged 15–24 in India & the other BRIC
countries is projected to fall by 61 million by FY30 & the over-65-
year-old population is expected to rise almost 50% by FY20. Foreign
manufacturing companies are more likely to set up shop in other
fledgling economies like Indonesia & Mexico where the population of
young people is projected to grow rapidly.
Logistical Impacts
Irrespective of the ultimate outcome of Government’s “Make In
India,” the nature of the subcontinent's supply chain is guaranteed a
makeover. The urgency behindGovernment’s infrastructure
initiatives will inspire rapid expansion & hardening of the nation’s
freight transportation network to accommodate the projected
increase in traffic. India’s national railway budget was approved
earlier last year & included expansions to the nation’s total rail freight
capacity by 50% to 1.5 billion tons per year.

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The supply chain makeoveris a much needed one for India. The 7th
largest country in the world in terms of land area presents a unique
logistical challenge for domestic & international manufacturers.
Before any of the planned & proposed improvements to India’s
infrastructure & domestic bureaucracy are enacted, those considering
business involving the Indian supply chain should consider several
factors:
 FY14 World Bank survey ranked India 46th in global trade logistics
performance, placing it behind some of its biggest competitors for foreign
manufacturing investment like Mexico & Turkey
 Planned domestic infrastructure improvements will be costly, especially
freight rail expansion — expect those costs to lead to higher freight tariffs
 Perishable & cold supply chains face a 20% spoilage rate on average due to
inefficiencies in India’s domestic freight infrastructure
 India is approximately two weeks farther from the United States by shipping
line than China
 Frequent power outages may cause delays in manufacturing schedules & an
increased likelihood of defective parts
 The Indian bureaucracy itself poses a challenge: government processes are
complex & confusing, & have the potential to cause further delays &
frustrations

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 India lacks a developed supply base: raw materials & parts are still often
imported for production
 The import process to the country remains complicated & non-standardized,
causing higher than normal requirements for inventory to offset
unpredictable delays
The lingering question remains: will Government’s many
infrastructure investments bear fruit in time to attract enough foreign
manufacturers to call “Make In India” a success? As the country
enters into this period of rapid industrial growth, the already
struggling logistical performance of India is almost guaranteed to
sufferin the short term . Public works projects on existing rail lines &
roads are sure to cause delays in an already heavily backlogged
transportation system. Congestion at major ports is also likely to
worsen due to an inability to quickly acclimate to increased traffic as
more international manufacturers move to India. Until India begins
to see returns on its domestic investments, the unavoidable
headaches, bureaucracy, & delays that come from gambling on the
Indian Supply Chain threaten to eliminate any savings foreign
manufacturers may see from moving to India.