 "Why 'Make in India' will get derailed without logistics")
The much ballyhooed ‘Make in India’ campaign has been the key strand of strategy for Indian economic revival and sustained growth. It promises that a boost in the country’s manufacturing capabilities by inviting foreign capital and technology would not only adjust the balance in India’s GDP skewed towards services but also provide employment.
‘Make in India’ embodies the manufacturing led, trade-export-growth model that has to be situated and understood in the context of global production systems. Today, manufacturing is dispersed throughout the globe with intermediate goods shipped numerous times in and out of multiple countries prior to being assembled together. This may happen within a single multi-national corporation like Apple. Its famous iPhone production includes more than 30 companies in different countries across three continents of North America, Europe and Asia.
As a result, global supply chains or global value chains have become more complex, less visible and highly risky. A typical supply chain is non-linear, despite the imagery it generates, and resembles a spider’s web more than an iron chain. Moreover, notwithstanding the label, ‘Assembled in China’ on the iPhone, denoting the country of origin of the product, the greatest value-add is not at Shenzhen, China, the final place of assembly. The actual value-add in this case is around two per cent. The increased share of trade as a percentage of global GDP reflects this phenomenon.
Therefore, the ‘Make in India’ strategy has to embed itself within the global supply chain network to participate and garner a greater share in the world trade. Irrespective of whether a specific good features upstream or downstream in the overall supply chain, only logistics connectivity moves it to the next facility in the chain, albeit at a cost, monetary and time as well. The supply chains are under tremendous pressure to pull out time and cost by becoming more efficient but also more fragile. Indeed, the raison d'être of global supply chains is their ability to manufacture and supply goods at a low cost well within time. The trade logistics network forms the backbone of modern supra-national supply chains.
Even if global production were to shift to India due to favourable wage-labour arbitrage, skilled work force, availability of industry specific clusters, reduction in non-tariff barriers amongst other incentives and she becomes the factory of the world a la China, high logistics costs would negate any low cost production advantage. Indian logistics costs are estimated to be at a high of around 13 to 14 per cent of GDP, almost double, when compared with 7 to 8 per cent of GDP in developed countries having superior logistics performance.
India discusses its infrastructural constraints ad nauseam; for instance, none of our major ports can routinely handle ships above 6000 TEU and as a result Colombo, Dubai and Singapore tranship our containers or our roads are congested and railways have capacity constraint. The government is keen on developing infrastructure. But we have to look beyond a generalised emphasis on improving transportation or infrastructure and equating it with logistics. Despite aiming to increase trade, we have never purposefully viewed our logistics competencies from the right perspective i.e., a specific trade logistics perspective. To point out, nothing else can explain our lack of an Electronic Trade Documentation System (ETDS) that needs filing of only a single document for utilisation by all agencies as in Singapore.
A trade logistics network designed with a purpose unifies elements of transportation, warehousing, trade facilitating institutions, information and communication technology (ICT) and logistics service providers and , equally important, works synergistically. This is in contrast to the default agglomeration of various modes of transport and related infrastructure facilities taken by us as a logistics network.
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When compared with the international trade logistics networks, the Indian logistics network lags on all aspects, be it infrastructure, customs or quality of services. Thus, the outcome is high cost, uncertainty in time and low reliability. India ranks at 54 in the World Bank’s, Logistics Performance Index, 2014, out of 160 countries, behind South Africa, Chile, Panama, Vietnam and Indonesia. China ranks at number nine immediately behind Switzerland while Germany leads the index.
‘Make in India’ would necessitate more than mere connectivity to international trade logistics network, rather complete integration with it so that exporters can move, store and deliver goods faster and cheaper, the only way to retain their competitive advantage. Otherwise, they will cease to be a part of the global value chain.
As we look towards leapfrogging and integrating ourselves higher up in the value chain for specialised tasks, our regional, national and international movement of goods will increase further. National competitiveness as a whole would decide the success of ‘Make in India’ strategy, which cannot be divorced from trade logistics performance. Fortunately, the logistics barriers faced by India are self-imposed and are not due to any geographical disadvantage such as being landlocked.
A targeted programme to redesign, build and upgrade the overall logistics network from the perspective of trade would be essential to assist ‘Make in India’ strategy. Unless we do this, the weaknesses of trade logistics would become the vulnerabilities of ‘Make in India’ strategy.
Prashant Kumar Singh is an officer in the Indian Air Force. The views are personal.
Twitter:@zenPK