India emerges as key global supply chain player despite challenges: BofA report

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India emerges as key global supply chain player despite challenges: BofA report

India emerges as key global supply chain player despite challenges: BofA report

Industry News
Oct 23,23

India's potential as a manufacturing powerhouse and export hub is hindered primarily by high logistics costs and a significant infrastructure gap, states the report.

India emerges as key global supply chain player despite challenges: BofA report

Following the global pandemic, there is a growing trend worldwide to diversify supply chains, and India is emerging as a prominent alternative supplier, as per a report by BofA Global Research.

India's potential as a manufacturing powerhouse and export hub is hindered primarily by high logistics costs and a significant infrastructure gap, states the report. Despite these challenges, India is already a major exporter of intermediate goods. The country is gradually shifting its export focus towards final consumer goods and advanced manufacturing value-added items, positioning itself higher in the global value chain, according to BofA economists.

Contrary to common belief, India has a substantial role in the global value chain, being a leading exporter of agriculture products, intermediate goods, IT, and IT-enabled services. Recent data from the World Bank indicates that India's Global Value Chain (GVC) output accounts for 3.17% of its total output, making it the fifth highest globally after China, the US, Japan, and Germany.

The report attributes India's attractiveness to certain policies and initiatives, including designating 461 districts as export hubs, establishing export promotion committees, implementing production-linked incentive schemes (PLIS), and developing three major ports under the Maritime Vision 2030 initiative.

To overcome the challenges, the Indian government is actively working on reducing logistics costs, which currently stand at 13.5% of the GDP, aiming to bring it down to 7.5% by 2029. Additionally, India's per capita infrastructure investment is below the global average at $88.6 (in constant 2015 terms). The government's focus is on targeted investment and policy measures to bridge the infrastructure gap, as evident in the increase in capital outlay as a percentage of GDP from 1.6% in FY2012 to 2.73% in FY2024, as outlined in recent union budgets.

Source: Money Control