In the second brief from our Emerging Markets series, we take a look at India, the country ranked number two in the Agility Emerging Markets Logistics Index.
At number two in the ranking, India has made significant progress in the last decade to modernise its logistics and supply chain industry and, by doing so, deliver strong economic growth. This has included introducing a Goods & Services Tax (GST) as well as an electronic waybill for transportation providers crossing state borders which has reduced corruption and transit times. At the same time, the government has looked at ways of making logistics more efficient by addressing bottlenecks, introducing technology and streamlining major transport infrastructure projects, often plagued by delays and mismanagement.
In 2022 the government introduced a National Logistics Policy which has been developed to build on this progressto date. This will include the creation of a unified digital platform that will provide end-to-end visibility for importers and exporters as well as the creation of a multi-modal network that will leverage an under-utilized rail system.
However, there is much to do if India is to attract more manufacturing from China – although the country has made a good start. In terms of logistics, for example, the average turnaround time at an Indian port is 20-40 hours higher than the global average and considerable investment is required in India’s port, airport, road and rail infrastructure. While most developed countries have a single digit logistics cost to GDP ratio, the Indian costs have been in the 14 to 18% range for years.
Raising barriers to capture supply chain value
Historically, protectionist policies have meant that India has excluded itself from many Global Value Chains, thereby losing the economic benefits which these can bring. When Prime Minister Modi came to power many in the global community hoped that he would reduce barriers to international trade, opening up the market to foreign competition.
However, in fact his policy response has been to raise duties further (up to 25%) on many imported intermediate products in order to encourage global suppliers to establish Indian operations and hence increase domestic value add. The so-called Phased Manufacturing Programme (PMP) started raising duties on specific components used in mobile phones in 2016 and rapidly expanded this list in subsequent years. The ambition of the PMP was to ensure that up to 50% of the value of a mobile phone assembled in India was generated by Indian-based suppliers (rather than imports), thereby establishing an eco-system for foreign investment and (although it may sound counter-intuitive) allow Indian high tech companies to better participate in Global Value Chains.
This forms part of a broader ‘Make in India’ policy discussed in detail in the Index. The stance of the Indian government towards trade policy is complicated by internal politics. There are those which fear the impact which the entry of multinational corporations into the Indian market would have on small businesses, in particular retailers. Regulations have consequently constrained the ambitions of international retailers such as Walmart and e-commerce players such as Amazon. There are also those who believe that China provides the greater threat, dumping cheap, subsidised exports on the Indian market to destabilise the economy and support its political goals of expansionism. It is worth noting that Prime Minister Modi has ensured that India is one of the few countries in the Asian region to oppose China’s Belt & Road Initiative, unlike its major rival and neighbour, Pakistan.
Author: Transport Intelligence
To find out more about the ‘Make in India’ policy and our Index top ten (China, UAE, Malaysia, Vietnam and more):
Download Ti & Agility’s free report: Agility Emerging Markets Logistics Index