According to BofA Global Research, the world is actively seeking to diversify its supply chains following the pandemic, and India is emerging as a strong alternative supplier.
However, the report highlights two significant obstacles in India’s path to becoming a manufacturing and export powerhouse: high logistics costs and a substantial infrastructure deficit.
BofA’s economists note that India is already a substantial exporter of intermediate goods and is gradually shifting its export focus toward final consumer products and advanced manufacturing value-added items to ascend the global value chain.
Challenges the common perception that India is not a major player in the global value chain, the report asserts that the country is a leading exporter of agricultural products, intermediate goods, and IT & IT-enabled services. On top of it, the exports of advanced manufacturing-related services from India have started to show growth.
The report draws attention to the policies that have contributed to India’s attractiveness as a destination, including designating 461 districts as export hubs, establishing export promotion committees in each district, implementing production-linked incentive schemes (PLIS), and the development of three major ports as part of the Maritime Vision 2030.
The government is taking action to address India’s two major hurdles on the path to becoming a manufacturing hub
India’s logistics costs is currently at 13.5% of GDP, among the highest globally, with a target to reduce them to 7.5% of GDP by 2029, the report noted while also highlighting that the per capita infrastructure investment in India is at $88.6 (in constant 2015 terms), which is significantly lower than the global average.
The report said that addressing these issues is a top priority on the government’s policy agenda. The government’s increased capital expenditure, evident in recent union budgets, reflects a commitment to bridging the infrastructure gap, with capital outlay as a percentage of GDP rising from 1.6% in FY2012 to 2.73% in FY2024. This boost in spending is predominantly directed toward addressing the infrastructure deficit.