India commands a three per cent share in the global manufacturing value chain while having the second largest population. From the manufacturing of pharmaceuticals, healthcare goods, chips, to electronics and white label goods, India needs to achieve self-reliance.
The COVID-19 pandemic has shown that achieving self-reliance is not a matter of choice but a necessity. With the global supply chain being in a flux, there is an opportunity.
The first steps towards making India a manufacturing superpower were taken with the Supply Chain Resilience Initiative (SCRI) of the Quad. The SCRI shows the growing chorus asking for India's participation in an alternative global supply chain.
A three-pronged approach based on a foundation, a driver, and a multiplier can make this happen: infrastructure creation, MSME supplier financing, and digital transformation.
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Build Infrastructure To Connect India's Highways to the Global Supply Chain
At 14 per cent, India has one of the highest logistics costs relative to GDP. Similarly, India's power cost as a percentage of GDP is also among the highest in the world.
This has limited the competitiveness of India's products in the past. For India to be a manufacturing global superpower, infrastructure creation is the foundation. It will serve two purposes.
First: As the infrastructure sector is labour-intensive, it creates a domestic economic growth model that will be insulated from global supply chain disruptions and business cycles. This is the key to realising the vision for self-reliance.
By connecting India's upcoming cities to better opportunities for domestic trade it will enable business continuity. Infra building initiatives like the 100 Smart Cities Mission and the PLI scheme covering 13 sub-sectors will enable Indian manufacturing to widen its footprint into tier-2 and tier-3 cities.
It will take the demographic load off the metro cities, cool real estate and raw material costs, and enable job creation.
Second, infrastructure creation will enable small and large manufacturers in India to connect to EXIM trade opportunities. Robust infrastructure for EXIM trade such as airports, ports, inland container depots, and logistics parks will allow Indian manufacturing to leverage the untapped potential of MSME suppliers through greater local capacity utilisation. Infrastructure creation alone can contribute 4.5 per cent to India's GDP growth rate every year.
Enable Frictionless Financing to Strengthen MSMEs
MSMEs are the drivers of India's economic growth. MSMEs in India contribute 30 per cent of India's GDP, 33 per cent of manufactured output, and 48 per cent of exports.
Through the COVID19 pandemic, supply chain financing fragilities have come to the forefront. The unavailability of on-demand credit is a major challenge for MSMEs.
One of the major barriers to the availability of on-demand credit for MSMEs is the use of offline credit disbursal methods that rely on unreported and under-reported metrics like sales, profitability and turnover.
The lack of visibility into relevant metrics distorts the creditworthiness assessment of MSMEs and slows down the release of working capital.
Agile cash flow is the fuel that India's MSMEs need. A shift from offline to digital credit disbursal can strengthen MSMEs' balance sheets.
Digital supply chain financing platforms leverage dynamic metrics like cash flow to make credit approvals safer through more accurate underwriting and enable quick on-demand credit injection into MSMEs' balance sheets.
A switch from cash-based offline credit disbursal to digital supply chain financing can add three per cent to India's GDP every year.
Accelerating Innovation Through Automation and Digital Transformation
The third enabler in this approach is the digital transformation of the entire supply chain ecosystem. Automation reduces the marginal costs of supply chain processes, reduces the time for executing repetitive tasks, and unlocks time to focus on strategic tasks.
Automation builds an error-proofing system from the ground up by leveraging clean data. The use of clean data is integral to zeroing down manual errors that amplify at each stage of the downstream supply chain.
Clean data is critical to enabling ZED (zero effect zero defect) quality control processes, custom manufacturing, and agile project management.
By augmenting visibility into worst, most likely, and best-case scenarios, the adoption of data and digital can enable early warning and rapid response systems for each of these scenarios.
By doing so, digital transformation can accelerate innovation. Our digital workforce has made us the global back office.
Digital transformation of manufacturing supply chain processes like procurement, distribution, and logistics tracking can make us the global factory.
Buoyancy in Indo-Pacific is India's Opportunity to Create a Community of Shared Destiny
Geopolitical risks, volatilities in the maritime trade route of the South China Sea, and economic risks in one direction. Indian manufacturing can offer what the global supply chain is demanding.
However, Thailand, Vietnam, and other nations that have the first mover's advantage from having participated in the East Asian growth miracle are strong competitors.
For India to respond to this challenge, we need to build a unique model of competitive advantage in manufacturing. Infrastructure is the foundation of that model. MSMEs are the drivers and cash-flow the fuel in this model.
Finally, digital transformation is the multiplier that will bring these together to work seamlessly for us and our partners across the world. The time to make India a manufacturing superpower and create a "community of shared destiny" is now.
(The author is CEO, Moglix.)
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