As supply chains transform dynamically all over the world, every country has its own inherent capabilities and resources for manufacture and trade. Geopolitics, pandemics, war, and trade tensions are major determinants of the global supply chain playing field. While China remains critical to global value chains (GVCs), there is a noticeable trend in implementing a China Plus One diversification. As a result, the spotlight has strategically shifted to countries like India, which present opportunities in cross-border manufacturing, supply, and distribution.
India’s demographics, market potential, and government push on manufacturing are driving its ability to emerge as a key link in GVCs. Its low-wage workforce and policies aimed at attracting large multinational companies give it an advantage to increase exports. Although India’s involvement in international trade has been marginal in the last two decades, the country is on the verge of a significant shift that could position it as a competitor to other emerging market economies within and outside Asia.
The Rising Giant
The Economist Intelligence Unit’s Business Environment Rankings (BER) expects Indian exports/imports to jump seven places to #10 in Asia by 2027, thanks to its ample supply of labour as well as internal consumer demand. The International Monetary Fund (IMF), on the other hand, expects the nation to be the third largest economy by 2027, surpassing Germany and Japan.
So, what has been steering India’s entry into the GVC? Micro, small, and medium enterprises (MSMEs) have been critical to driving more business, generating income, and creating the right environment for investment and growth. Providing specialised products and services targeted at international markets, MSMEs have been contributing to India’s increasing participation in the GVC.
Structural reforms and strategic economic moves such as the Digital India initiative for futuristic supply chains has been creating an ecosystem for MSMEs to thrive in. Innovation, opportunities, and jobs have been seeing an uptick. India’s Production Linked Incentive (PLI) scheme aims to attract foreign direct investments (FDIs) while also promoting domestic manufacturing.
With the World Investment Report 2024 highlighting a significant 44% rise in FDIs in developing economies in Asia, India and Asean figure among the top recipients. India has also pumped up it’s free trade agreements (FTAs) over the last couple of years, including trilateral Supply Chain Resilience Initiative (SCRI) with Australia and Japan, as well as agreements with South Korea, Singapore, and several other countries. Additionally, trade negotiations are underway with the European Union, Canada, the United Kingdom, New Zealand, Brazil, and South Africa, among others, in efforts to lower trade barriers and compete with global supply chain hubs.
Furthermore, India’s location in the Indo-Pacific region gives it a strong advantage with easy access to global trade routes. Lower tariffs, lower costs, and greater incentives can make India a strong contender in a diversified supply chain. The country’s robust diplomatic ties and active participation in regional and global trade forums can further boost its credibility as a growing economy. However, there are issues to address.
Towards GVC Leadership
While India’s supply chain and trade ecosystem is as dynamic as it is diverse, it faces challenges in finding a footing in the GVC. India needs to better manage inverted import duty structures as well as labour and land market rigidities, even as it adapts its free trade agreements (FTAs) to economically diverse nations. Focussing on labour-intensive sectors may help give it a competitive edge. For instance, India’s capabilities with telecommunications that form the world’s second largest sector, pharmaceuticals that take the third spot globally, and the automotive industry that ranks fourth on international trade charts can help modernise India’s supply chains, securing it a top spot in the GVC.
However, its ambition of increasing its GVC participation from its current 40% to a more ambitious 50% calls for building indigenous capabilities to produce complex and high value products for the global market. This can help tackle the challenge of reliance on imports.
Another major hurdle, particularly for MSMEs, is access to ample and cheap working capital. Trade finance is crucial for scaling operations and participating GVCs. Digital working capital platforms can make a transformative impact by providing flexible, adaptable, and quick financing solutions. They help manage cash flow, provide the necessary funding for investment in new technologies, and meet global market demand. Providing visibility and transparency into the entire supply chain, connected digital capital solutions can help streamline the funding process, collaborate with multiple business partners, reduce reliance on traditional banking processes, and offer Indian suppliers the liquidity that is essential to GVC participation.
TASConnect’s connected capital solution enhances working capital management through increased scalability, transparency, and global connectivity. Our integrated platforms can be tailored to link an enterprise’s entire business network, end-to-end, digitally connecting treasury operations with GVCs. We empower MSMEs as well as larger businesses to grow their operations, engage with international suppliers and customers, access a wider range of financing options, and improve supply chain visibility.
Cross-border operations key to India’s economic growth
Early this year, India was reported to be the world’s fastest-growing economy. Sustained expansion efforts, robust reforms, and an ambition to stand on its own as a GVC leader can help India become a better developed economy. Digital working capital solutions can better position Indian businesses to capitalise on opportunities within the GVC. Together with full local delivery and support capabilities in India, TASConnect’s international footprint of corporate and financial relationships can be effective in addressing the needs of Indian companies expanding their business partnerships with customers and suppliers abroad. India’s focus should now be on creating a better ecosystem for digital supply chains, connected working capital solutions, and sustainable investments. Its agility in cross-border operations will be key to its economic growth.
Discover how TASConnect can help with connected working capital solutions, cross-border trade openness, and seamless transactions for deeper trade ties. Contact us today.
