India: A Growing Link in the Global Supply Chain
A look at the nation's success stories, and the challenges that persist, in autos, oil, power, steel, and electronics With more than 500,000 new engineering graduates each year, India is in a strong position to be an engineering powerhouse. But while India is one of the biggest players in the services and information technology sector, the same cannot be said of our supply chain and engineering capability. India's manufacturing exports still amount to less than 10% of gross domestic product, whereas more than one-third of China's GDP comes from manufacturing. India still doesn't have the most congenial business environment. Bureaucratic hurdles and a tough approvals system for setting up new businesses are not as severe as in the past, but they continue to create bottlenecks. Land acquisition is a major hindrance to setting up new plants, as the problems of Tata Motors in West Bengal last year demonstrated. Illiteracy and unskilled labor are disincentives to modern organizations that thrive on high productivity. So, too, are infrastructure problems such as clogged ports and roads, power failures, and water shortages. In spite of these many challenges, India is slowly but surely making a mark in the global supply chain. We are still a long way behind China and Japan, but there has been definitive progress. Here, the challenges and success stories, by sector. Automobiles
The Indian triumph in the auto supply industry is well known. A small set of Indian manufacturing companies are vendors of choice for global automobile multinationals that purchase small parts. These suppliers are valued for their reliable, high-quality products and on-time delivery. Four Indian auto parts companies have received the coveted Deming Prize for excellence in quality. The next challenge for Indian component suppliers is to upgrade from supplying simple parts to complex assemblies and transmissions. The transition to high-end manufacturing already is in progress. In the automobile sector, quality is crucial for the top players. And in a vote of confidence for India, leading carmakers such as Hyundai, General Motors (GM), Toyota (TM), and Ford (F) have either tied up with a local operator or opened their own manufacturing units and are supplying cars from India to the rest of the world. With India's manufacturers combining engineering excellence and low costs, more companies are discovering the benefits of operating out of the country. In the coming years, India should continue to be a major manufacturing base for auto companies. Local demand for small and midsize cars is growing, thanks to increasing disposable income. The current global recession has dampened automobile demand, but it should encourage more cost-conscious manufacturers to shift operations out of Europe and the U.S. to India. Oil Exploration and Petroleum Refining
India currently imports nearly two-thirds of its crude oil. With volatile oil and gas prices worldwide, self-sufficiency in energy is a national imperative. The Indian government has come up with a National Exploration Licensing Policy, or NELP, under which exploration and production companies (E&P) have acquired exploration blocks. Aggressive implementation of NELP has resulted in quite a few new gas discoveries in the last few years. Oil refining companies in India have world-class capabilities. But the government's oil subsidy policy and differential pricing has been hurting their bottom line. Future growth in the oil and gas sector depends on new discoveries. To be more self-sufficient and globally competitive, India needs to shift from pricey crude imports to higher volumes of Indian crude. India also is looking toward adapting cheaper, greener alternatives such as liquefied natural gas, biofuels, and hydrogen energy. However, for this movement to pick up momentum, the government needs to offer more incentives for research and adoption of these fuels. More state...
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