24 Jul Global Supply Chain Spotlight Shines On India
India is stepping into the global supply chain spotlight, as corporations worldwide seek to boost resilience by diversifying and de-risking their supplier networks. India’s warming relations with Washington, deepening connections with tech-industry leaders, savvy investments in transportation infrastructure, and the country’s remarkable demographic trends have positioned the South Asian nation to emerge as a supply chain powerhouse for years to come.
WASHINGTON TRIP HIGHLIGHTS DEEPENING TIES
In June, Indian Prime Minister Narendra Modi visited Washington, where he met with President Biden, enjoyed a state dinner held in his honor, and spoke to a joint session of Congress.
Among the pomp and circumstance, a clear message emerged that the leaders of both countries are eager to bolster their economic relationship, build more resilient supply chains, and reduce barriers to trade.
In a joint news conference President Biden said, “Our economic relationship is booming,” hailing “a partnership that is among the most consequential in the world, that is stronger, closer and more dynamic than any time in history.”1
After the meeting, the White House released joint statement from the US and India. Highlights included topics such as “Charting a Technology Partnership for the Future” as well as signing a Memo of Understanding on a “Semiconductor Supply Chain and Innovation Partnership”. In addition, this message was included in the joint statement:
“The U.S.-India trade and investment partnership is an engine for global growth, with bilateral trade exceeding $191 billion in 2022, nearly doubling from 2014. The leaders applauded the reconvening of the U.S.-India Commercial Dialogue and CEO Forum in March in New Delhi. They encouraged respective industries to take action on the recommendations from the CEOs for greater engagement and technical cooperation to build resilient supply chains for emerging technologies, clean energy technologies, and pharmaceuticals; promote an innovative digital economy; lower barriers to trade and investment; harmonize standards and regulations wherever feasible; and work towards skilling our workforces.” 2
In his address to Congress, Modi said, “When India and the U.S. work together on semiconductors and critical minerals, it helps the world in making supply chains more diverse, resilient and reliable.”3
Just from these communication points, it’s clear the leaders of both nations are eager to deepen and broaden business ties. If successful, India’s role in global supply chain resilience programs will grow.
TECH INDUSTRY SEES BIG OPPORTUNITIES IN INDIA
Top tech CEOs met face-to-face with Modi while he was in Washington, including Apple’s Tim Cook, Alphabet’s Pichai Sundararajan, and Microsoft’s Satya Nadella.
After the meeting, Tim Cook shared with CNBC that India represents a “huge opportunity.” The company opened its first Apple stores in India this year and is exploring avenues to forge connections with knowledge workers and technology suppliers.
CEO of Open AI, Sam Altman also met with Modi and reportedly discussed opportunities to collaborate on AI. 4
Modi visited with Tesla CEO Elon Musk as well, who assured the Prime Minister that the electric carmaker will be in India “as soon as humanly possible.” Speaking to reporters, Musk enthused that India had “more promise than any large country in the world”.5
Semiconductor-industry companies, including Micron and Applied Materials used Modi’s US visit to announce significant investments in India, while Lam Research revealed plans to train up to 60,000 Indian engineers.6
Collectively, the enthusiasm exhibited by these global technology leaders is a key reason India is stepping into the global supply chain spotlight. Their keenness points to an exceptional opportunity for the long-term growth of the high-tech industry in India.
ECONOMIC, DEMOGRAPHIC REALITIES MAKE INDIA ATTRACTIVE FOR BUSINESS
One reason India is so attractive to the tech industry for both producing and selling their goods is the sheer size of the population and market. With an estimated population of 1.425 billion people, India has surpassed China as the world’s most populous country.
Even as fertility rates decline, the Indian population is expected to grow for another four decades, per UN estimates. Remarkably, 47% of Indians are below the age of 25. Worldwide, 1 in 5 people under the age of 25 now live in India. For good reason, the country’s leadership is eager to create jobs for this young working-age population.7
By 2050, India’s working-age population will dwarf that of every other country. At that time, many individuals in Europe and large parts of East Asia will be of retirement age – with people age 65 and older in those regions making up nearly 40 percent of the population. As a point of comparison, that’s double the current share of older adults currently residing in Florida, America’s retirement hot spot. 8
India is already the world’s fifth-largest economy and is growing fast, with the country’s GDP set to overtake Japan and Germany by 2028.9
Ironically, another reason India is poised for dramatic domestic growth is due to the country’s diaspora. India’s migrants are found all over the world. The country has a strong higher-education system and many students have a mastery of English. Per one source, 2.7m Indian-born migrants from India are living in US, 835,000 in Britain, 720,000 in Canada, and 579,000 in Australia.
In the Middle East, many migrants are attracted to construction and hospitality jobs that pay better than back home. For example 3.5m Indian-born migrants are currently living in the United Arab Emirates and 2.5m in Saudi Arabia.10
Once established in a new country, it is natural for the immigrants and their families to do business with connections in India. Their familiarity with the country and its people are an asset for companies seeking to add suppliers, grow operations, or increase sales in India. This is true across all industries and is notable in the high-tech industry, in which business leaders who were born in India include Microsoft’s Nadella, Alphabet’s Sundararajan, and Micron’s CEO, Sanjay Mehrotra, to name just a few.
INFRASTRUCTURE, AVIATION, & E-COMMERCE SET THE STAGE FOR GROWTH
India has been investing in transportation infrastructure improvements in recent years and this year is spending 1.7 percent of its GDP on infrastructure, nearly double the level in the US and most European countries. The big investments are essential, as Modi’s government seeks to boost economic activity and job creation.
India is aiming to grow from a $3.5 trillion (USD) into a $5 trillion economy by 2026. Many of the infrastructure investments are designed to improve logistics – facilitating the flow of people and goods. 50,000 km of national highways have been added in the past eight years.
The country is spending nine times more on railway capital expenditures than 10 years ago as it races to add new tracks, coaches and facilities. In that time, the number of airports in India have doubled to 148. Aviation traffic is expected to more than triple in the next ten years to 400 million passengers per year.11
The aviation industry is taking note. Earlier this year, Airbus CEO Guillaume Faury described the Indian market as “the fastest growing in the world.”
In February, Air India placed a huge order for 470 aircraft (250 from Airbus and 220 from Boeing). The Boeing order includes options to buy an additional 70 aircraft. Owned by the Tata Group, Air India is the country’s largest international carrier and the second-largest domestic carrier.12
IndiGo is India’s largest airline with a 60% domestic market share. Not to be outdone by their chief competitor, IndiGo made headlines at the Paris Air Show, announcing the biggest plane deal in aviation history by ordering 500 jets from Airbus.13
Cargo airlines are also expanding their networks in and out of India, as e-commerce volumes boom. According to Amazon, more than 125,000 Indian exporters are taking part in Amazon’s global selling program, allowing them to accelerate their international sales.
An Amazon spokesperson claims the marketplace had seen increasing demand for Indian goods from some 18 global markets, most notably the US and UK. The Indian export market on Amazon is expected to hit $20 billion by 2025, up from $8 billion this year.14
STUMBLING BLOCKS TO INDIA’S GLOBAL SUPPLY CHAIN PROMINENCE
The opportunity for India to play a pivotal role in global supply chains has never been better. Yet, of course, there are doubters. A history of cronyism and protectionism have previously held the economy back. Some say layers of legislative bureaucracy exist that may make it difficult for businesses to gain a quick foothold in the country.
Further, some Westerners see Mr. Modi’s erosion of democratic norms and growing sectarianism as potential threats to growth. Whereas, those in China and Russia may view his leadership style as not authoritarian enough.15
Of note, in his nine years as prime minister, Modi has often avoided direct contact with India’s news media. For years, human-rights groups have criticized discrimination against religious minorities, especially Muslims, and a crackdown on dissent and press freedom under Modi’s Hindu nationalist government.
During his Washington visit, the media had an opportunity to question Modi on these matters. However, Modi sidestepped those issues by defending India’s record in upholding democratic principles, telling reporters, “Democracy is in our DNA. Democracy is our spirit. Democracy runs in our veins.”16
Even as relations warm between the US and India, some experts believe the countries are not allies per se, rather the nations simply have strategic economic interests that are now more closely aligned.
Another stumbling block may be that the US and India lack a free-trade agreement, despite Modi’s interest in forging a deal. US political observers note that on both sides of the aisle there is little willingness to support a free trade agreement at this time. Instead, improving US infrastructure and the competitiveness of the American worker are higher priorities in Washington and with American voters.17
Those skeptical about India’s ability to become a high-tech manufacturing hub point to recent events involving Foxconn. Just weeks after Modi’s Washington visit, the world’s largest technology-contract manufacturers (and a top Apple supplier), made news by pulling out of a 19.4 billion joint-venture project that would have built one of India’s first semiconductor fabs.
Per reports, the company provided a vague rationale that the project was not moving fast enough amid challenges that were tough to overcome. Yet, within days, Foxconn was quick to announce their commitment to invest in the country. A company spokesperson said, “India remains pivotal in repositioning global semiconductor supply chains.”18
Only time will tell if other companies and industries experience similar fits and starts as India seeks to become a leader in the global economy, on par with America, China and the European Union.
However, in a recent article, The Economist published data to counter those who doubt, for many of the reasons outlined above, India’s long-term business-growth prospects.
“But for India to become a pillar of the world economy, no miraculous improvement on all these scores is required. It just needs to keep growing at roughly its present pace. Goldman Sachs projects India’s GDP will overtake the euro area’s in 2051 and America’s by 2075. That assumes a growth rate of 5.8% for the next five years, 4.6% in the 2030s and lower beyond.” 19
WILL INDIA BE A PART OF YOUR GLOBAL SUPPLY CHAIN?
It appears increasingly likely that India will be an integral part of many US corporation’s global supply chains.20
India’s trading relationship with the US has strengthened in recent years. 2022 trade between the two countries hit $191 billion, a record. Now, the US is India’s largest trading partner – the US is also India’s third-biggest source of direct investment.
Even as India’s business relations with the US improve, the country maintains strong trade relations with China, Russia and Saudi Arabia. That’s no small task.
However, India shares a 2,100 mile contested border with China, which is a source of great tension. This decades-long border dispute may be why Modi is signaling that India has no plan to poach enterprises looking to de-risk their sourcing from China.
In an exclusive interview with The Wall Street Journal, Prime Minister Modi shared his insights and in doing so, revealed some political savvy in avoiding conflict with other Asian nations:
“Let me be clear that we do not see India as supplanting any country. We see this process as India gaining its rightful position in the world,” Modi said. “The world today is more interconnected and interdependent than ever before. To create resilience, there should be more diversification in supply chains.” 21
In spite of the stumbling blocks noted above, there are many indications that as the global supply chain spotlight shines on India, the country will emerge with an expansive role in international trade.
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1, 16. Sabrina Siddiqui, Gordon Lubold, and Ken Thomas, “Biden Hails Stronger U.S. Ties to India in Meeting With Modi”. June 22, 2023, as published by The Wall Street Journal.
2. The White House, “Joint Statement from the United States and India”. June 22, 2023, as published by The White House.
3, 17. Charmaine Jacob, “U.S.-India relations enter a new chapter and could unlock even more tech and defense deals”. June 23, 2023, as published by CNBC.
4, 6. Seema Mody, “Apple’s Tim Cook calls India ‘huge opportunity’ after tech meeting at White House with Prime Minister Modi”. June 26, 2023, as published by CNBC.
5. Meryl Sebastian, “Modi in US: Elon Musk says Tesla to come to India ‘as soon as possible’”. June 21, 2023, as published by BBC News.
7. Soutik Biswas, “Most populous nation: Should India rejoice or panic?”. May 1, 2023, as published by BBC News.
8. Lauren Leatherby, “How a Vast Demographic Shift Will Reshape the World”. July 16, 2023, as published by The New York Times.
9. Leaders’ staff, “Joe Biden and Narendra Modi are drawing their countries closer”. June 15, 2023, as published by The Economist.
10. International staff, “India’s diaspora is bigger and more influential than any in history”. June 12, 2023, as published by The Economist.
11. PTI News, “India’s ‘eye-watering’ 1.7 pc spend on transport upgrade to set stage for $5 trillion economy”. March 21, 2023, as published by The Economic Times.
12. AP, “Air India places orders for 470 Boeing and Airbus aircraft”. February 14, 2023, as published by CNBC.
13. Reuters, “Airbus wins record 500-plane order from India’s IndiGo”. June 19, 2023, as published by CNBC.
14. Angelo Mathais, “Cargo airlines have India’s booming e-commerce traffic on their radar”. July 10, 2023, as published by The Loadstar.
15, 19. Asia staff, “America is courting India in part for its growing economic clout”. June 13, 2023, as published by The Economist.
18. Michelle Toh, “Foxconn pulls out of $19 billion chipmaking project in India”. July 12, 2023, as published by CNN Business.
20, 21. Rajesh Roy, Brendan Moran and Gordon Fairclough, “India’s Modi Sees Unprecedented Trust With U.S., Touts New Delhi’s Leadership Role”. June 20, 2023, as published by The Wall Street Journal.
SSI blog post entitled: Global Supply Chain Spotlight Shines on India.