India is aiming to establish itself as a major manufacturing hub for global markets, following China’s successful model of becoming the “factory of the world.” This shift is driven by recent changes in global supply chains due to the pandemic and geopolitical factors, presenting India with an opportunity to increase its “Made-in-India” presence on Western shelves.
India is now becoming an increasingly attractive source for finished goods. Several global brands, including Walmart, Marks & Spencer, GAP, and Tesco, are planning to increase their sourcing from India.
Tiruppur, a major textile production hub in Tamil Nadu is seeing a surge in orders, with some global brands diverting purchases from Bangladesh due to social unrest there. Recent custom duty cuts in India’s budget are expected to further boost exports from Tiruppur. Additionally, the India-Australia Free Trade Agreement has led to increased orders from Australian brands.
A Boston Consulting Group study revealed that while U.S. goods imports from China declined by 10% from 2018 to 2022, they rose by 44% from India during the same period. This shift is particularly noticeable in sectors such as mechanical machinery, where U.S. imports from China shrank by 28% but increased by 70% from India.
The QIMA Sourcing Survey 2023 found that India and Vietnam are now viewed as equally important overseas sourcing partners for Western businesses. Both countries were named among the top three sourcing geographies.
Walmart is significantly increasing its sourcing from India across various categories, including food, apparel, and toys. The company plans to source $10 billion worth of goods annually from India by 2027, up from the current $3 billion.
India is gaining a cost advantage in direct manufacturing compared to China. According to the Boston Consulting Group report, the average landed cost of Indian-made goods imported into the U.S. is 15% lower than if the goods were made in the U.S., while the average U.S. landed cost from China is only 4% lower than U.S. costs and 21% higher for goods subject to U.S. tariffs related to the trade frictions.
Labor costs adjusted for productivity have risen less steeply in India compared to other countries, giving it an additional edge. From 2018 to 2022, productivity-adjusted labor costs rose by 21% in the U.S., 24% in China, and only 18% in India.
While India is making progress in becoming a global manufacturing hub, it still faces competition from other Asian countries such as Bangladesh and Vietnam. However, the current global trends and India’s improving cost competitiveness suggest that it has the potential to slowly build a bigger edge and establish a stronger presence in global supply chains.
