India stands at the threshold of an unprecedented opportunity in global manufacturing exports. It is in a pivotal moment characterised by evolving global dynamics and ambitious domestic initiatives. The convergence of burgeoning infrastructure development, including initiatives such as the National Logistics Policy and the Gati Shakti Scheme, has positioned India favourably in the eyes of global manufacturing giants seeking alternative production and sourcing destinations.
Forecasts signal a robust annual GDP growth ranging between 6 percent and 8 percent over the next 5–6 years, projecting India’s GDP to rise to $6 trillion (by the end of FY30). This confluence presents a critical juncture for India to reinforce its participation in the Global Value Chains (GVC), in sectors such as electronics, semiconductors, pharmaceuticals, automotive, specialty chemicals, and industrial products.
However, India must strike a delicate balance between this promising scenario and capitalise on these opportunities to emerge as a hub for global supply chains and tackle multifaceted challenges to sustainable growth.
In line with the sustainability commitments of developed nations (as outlined in the Paris Agreement), India, as a developing nation, faces the challenge of meeting its clean energy requirements to power its industries. Despite the recent milestones in energy, fulfilling a peak demand of 240 GW (a significant reliance on thermal power stations fuelled by coal) underscores the need for cleaner energy sources. India’s G20 presidency emphasises a green development pact, highlighting the centrality of Sustainable Development Goals (SDGs) in global actions and policies.In the current geopolitical situation, a vacuum is created in the global supply chains that India is trying to fill. The Production-Linked Incentive (PLI) scheme is anticipated to drive advancements across key sectors. To use the shift in global supply chains effectively and enhance its competitiveness, India needs to focus on the following four critical initiatives in the upcoming budget:
Forecasts signal a robust annual GDP growth ranging between 6 percent and 8 percent over the next 5–6 years, projecting India’s GDP to rise to $6 trillion (by the end of FY30). This confluence presents a critical juncture for India to reinforce its participation in the Global Value Chains (GVC), in sectors such as electronics, semiconductors, pharmaceuticals, automotive, specialty chemicals, and industrial products.
However, India must strike a delicate balance between this promising scenario and capitalise on these opportunities to emerge as a hub for global supply chains and tackle multifaceted challenges to sustainable growth.
In line with the sustainability commitments of developed nations (as outlined in the Paris Agreement), India, as a developing nation, faces the challenge of meeting its clean energy requirements to power its industries. Despite the recent milestones in energy, fulfilling a peak demand of 240 GW (a significant reliance on thermal power stations fuelled by coal) underscores the need for cleaner energy sources. India’s G20 presidency emphasises a green development pact, highlighting the centrality of Sustainable Development Goals (SDGs) in global actions and policies.In the current geopolitical situation, a vacuum is created in the global supply chains that India is trying to fill. The Production-Linked Incentive (PLI) scheme is anticipated to drive advancements across key sectors. To use the shift in global supply chains effectively and enhance its competitiveness, India needs to focus on the following four critical initiatives in the upcoming budget:
- Substantial investments in clean energy are imperative. The government’s allocation of Rs 35,000 crore for priority capital investments (in the previous budget towards India’s energy transition) aligns with the net-zero objectives. A higher capex spending by the government is expected to crowd capital spending towards clean energy technologies. This strategic shift is fundamental to fostering green funding and supports the production and storage of green electricity facilitated by the 30 critical minerals identified by the Centre for Social and Economic Progress (CSEP). Critical minerals, such as cobalt, molybdenum, and nickel are essential in clean technology value chains and require substantial R&D for further exploration. This proactive approach is vital for considering the projected collective reserve requirement of about 200 KT by 2040.
- An emphasis on value-added manufacturing is significant. India’s GVC journey has seen a shift from contributing 47.6 percent to total exports before 2008 to 39 percent by 2022. Notable improvements have been made in medium- to high-tech manufacturing sectors, such as chemicals, electrical machinery, and industrial equipment. Augmenting backward linkages in key industries, such as electronics, industrial equipment, electrical machinery, telecom, and automobiles, is essential to enhance domestic value addition.
- Mitigating the risks associated with capital flows to Micro, Small, and Medium Enterprises (MSMEs) is critical. Introducing credit guarantees and insurance schemes tailored for sectors such as automotive, electronics and industrial machinery can address substantial credit gaps, thereby bolstering the competitiveness of these entities.
- A considerable focus on technology R&D is paramount. Elevating R&D investment to 1.5 percent of GDP is essential to expedite exploration, optimise resource efficiency, promote recycling initiatives, and undertake substitute research. A comprehensive national R&D policy will attract private investments, especially benefitting MSMEs striving to match the capabilities of suppliers from other Asian countries.
The imminent budget is expected to direct its attention to the above pivotal areas. Despite a decline in the Foreign Direct Investment (FDI) in certain manufacturing sectors, an upsurge of FDI in segments such as electronics, pharmaceuticals, and food processing is seen. Strengthening regulatory frameworks and augmenting budget allocations in these sectors can further incentivise FDI inflows, bolstering India as an attractive manufacturing destination.
Addressing these fundamental areas will fortify India’s competitive edge in the global manufacturing arena, ensuring sustained growth, fostering innovation, and securing a more pronounced role in global value chains. These strategic policies will position India favourably in the upcoming union budget to seize the unfolding opportunities amidst the crises in the global supply chain.
Easwaran Subramanian, Partner and Supply Chain Leader, Deloitte India and Kathir Thandavarayan, Partner, Consulting, Deloitte India.
