To promote India’s supply chain industries, the country needs to look at the Vietnam model which developed supply chain industries in the pandemic, says SUBRATA MAJUMDER.
IT by COVID-19, India is in the dichotomy of over-dependence on imports for its emerging industries. They are import intensive industries. Rapid growth in electronic industries, including mobile phone manufacturing, telecommunication equipment, automobile and digital economy led India to become overdependent on imports. China has been the main stakeholder in the supply chain for parts, components and capital equipment. About 38-39 percent of electronic industries, including mobile phones and their parts, telecommunication equipment and parts, auto parts and over 80 percent of drug intermediates for pharmaceutical industries are imported from China.
In the wake of supply chain disruption, arguments and counter-arguments sparked against the over-dependence on China due to the pandemic and rise in political tension, owing to border conflicts.
The government adopted Atma Nirbhar Bharat Abhiyan – a movement for self-reliance. The main aim is to promote domestic supply chain industries and insulate the nation from supply chain disruption. It splurged on financial packages to stimulate the sentiment of domestic entrepreneurs, especially MSMEs, for the development of the domestic supply chain industry.
But, are they enough to withstand the stiff competition from China? Alongside the financial doles, it needs transformation in the manufacturing and new dimension in policy perspectives to develop the supply chain industries. Currently, “Make in India” is bereft of policy dynamism to boost the supply chain industry. The supply chain industry is the backbone for assembly-based industries, such as electronic industries, including mobile phones and their parts, telecommunication equipment and auto parts.
SUPPORTING INDUSTRY AND ITS GROWTH
The essential part of self-reliance in the supply chain industry is the development of the Supporting Industry.
Japan was the pioneer to develop Supporting Industry, which was followed by South Korea, China and South East countries. According to the Japan Overseas Enterprises Association, Supporting Industry was defined to supply raw materials, components, parts and capital goods for assembly-type industries. Electronics, automobiles, telecommunications, automobile are the Supporting Industry base. With west turning less cost effective, East and South East Asian countries emerged potential for the development of supporting industry.
MNCs shifted their investment in China and South East Asian countries to procure components, parts, intermediates and capital goods for assembling finished or semi-finished products in the home countries or elsewhere.
According to the Japan Overseas Enterprises Association, Supporting Industry was defined to supply raw materials, components, parts and capital goods for assembly-type industries.
Toyota Motor Company is a case in point. It invested in China and South East Asian countries to develop component and parts manufacturing to support its car manufacturing in Japan and elsewhere, including India. Manufacturing the “Innova” is an example.
Supporting industry has become the pillar for globalisation of manufacturing in the 2000s. About 70 percent of the world’s international trade and investment include the exchange of raw materials, components, intermediates and capital goods. Most of them have taken place in the form of a Global Value Chain.
Currently, Vietnam can be a lesson for Supporting Industry. It has made a breakthrough in the development of Supporting Industry and has been the potential for an alternative destination for China in the post-COVID 19 era. It has about 1800 supporting enterprises. It accounts for 4.5 percent of total manufacturing enterprises in Vietnam. Of these, 300 enterprises are engaged in supply chain for multinational corporations.
Vietnam has made a breakthrough in the development of Supporting Industry and has been seen as the potential alternative destination other than China in the post-COVID 19 era.
Supporting industry opened new opportunities in Vietnam during the pandemic. Given the COVID 19 hit production network in China, Japan and South Korea, foreign investors in Vietnam started relying on domestic enterprises for the supply of components, parts and capital equipment. MOIT (Ministry of Industry and Trade), Vietnam, entered into MOU with South Korean giant Samsung to develop domestic supply chain industries. Samsung will cooperate with MOIT and provinces and cities in Vietnam in training and counselling for local enterprises, allowing them to take part in the global value chain.
FDI has played an important role in the development of the supporting industry in Vietnam. Notwithstanding COVID 19, FDI surged in Vietnam. FDI in HCM City, increased by over 7 percent in the first ten months of 2020. Six out of eleven newly FDI were in the Supporting industry.
INDIA AND THE NEED FOR SUPPORTING INDUSTRY
India too emerged as the potential destination for foreign investors during the global pandemic. FDI increased by 15 percent during the first six months of 2020-21 over the preceding period in 2019-20. This was despite the fact that strict adherence to lockdown was maintained and the manufacturing growth was almost crippled by the closure of factories.
Make in India was losing steam. This was affirmed by Prime Minister Narendra Modi’s silence in the Independence day speech on August 15, 2019. This was despite the fact that India’s rank in World Bank Ease of Doing Business improved. Observers believe this warrants transformation in manufacturing practices. The Economic Survey 2019-20 advocated India to be a global hub for assembly operations as a transition in manufacturing. It asserted for “integrating Assemble in India for the world into Make in India”.
Economic Survey 2019-20 advocated India to be a global hub for assembly operations as a transition in manufacturing.
Given that the global manufacturing practices shifted to supporting industry under the Global Value Chain system, the Economic Survey suggested that India should focus on exports of NP (Network Product) which are produced under Global Value Chain with the ownership of MNCs. In the operation, MNCs depended on transnational companies as a workshop in developing nations who are blessed with comparative cost merits and medium-skilled manpower. The investment by Apple, Samsung, Sony for manufacturing mobile phones in India are the case in point.
India has made a start in structural reforms to develop the domestic supply chain industry or supporting industry. The new fiscal packages redefined MSMEs. It expanded the scope of MSMEs by making structural reforms in their sizes in terms of capital investment and turnover on the line of global standard. Hitherto, MSMEs were defined by investment in capital goods only. About one-third of India’s manufacturing output is contributed by MSMEs.
Similar to the lines adopted by Vietnam, MNCs should be brought on to the drawing board for policy-making decisions to develop Supporting Industry in the country. Since India continues to be an attractive destination for foreign investors, the time has come to grab foreign investors for counselling the development of the domestic supply chain industry. (IPA Service)