From a spend management perspective, sourcing from India may not be the most feasible option available. Professionals specializing in this particular medium would point out a couple of factors when considering procuring goods produced in India:
- The nation's policies pose many hindrances when entrepreneurs or other entities attempt to set up new or support existing operations.
- Transportation from the Indian coast, through Indonesia and along the East African coast poses a number of cost and risk considerations.
Those who are more likely to carry an optimistic tone and assess potential opportunities are not likely to write off India as a potential source of materials and finished products. After all, every country has its challenges.
Factory output rising
Despite the aforementioned concerns, India has made considerable strides over the past three years or so. The Agence France-Presse referenced a survey conducted by banking firm HSBC, which found that India's purchasing managers index rose to 54.5 points in December 2014 - 1.2 points higher than the previous month. This particular metric assesses the factory output of an economy on a monthly basis. Any measurements above 50 points suggests growth, while those below 50 points are typically indicators of contraction.
Pranjul Bhandari, HSBC's chief economist, noted that businesses from across the globe are building relationships with Indian manufacturers, a clear sign that procurement officers are beginning to recognize the country's potential as a solid economic entity.
"Manufacturing activity momentum accelerated to a two-year high in December, led by a healthy increase in new orders," said Bhandari, as quoted by the source.
While the assessment conducted by HSBC certainly deserves recognition, there are those in purchasing management who would ask the question: "Just because other enterprises are sourcing from India, why should my employer?" Following a trend simply because "everybody else is doing it" isn't a mindset that belongs in the world of procurement.
Economic reforms gaining momentum
Indian legislators aren't ignorant of the general sentiment among many economic analysts, which is that India's regulations make it much too difficult for enterprises to do business with the nation's production sector. To the benefit of both the Indian people and enterprises throughout the world, India's lawmakers are taking tangible steps to make the country more investment-friendly.
The World Bank acknowledged the enactment of the Goods and Services Tax and how India dismantled a number of interstate check posts, the latter of which will allow companies to more easily transport materials into the country and finished goods out of the nation.
According to the World Bank's estimate, it may not seem like such a significant move, but the simple decision to reduce the delays associated with road blocks, tolls and other hindrances could potentially cut freight delivery times by anywhere between 20 and 30 percent. Furthermore, it's predicted that these measures will decrease logistics expenses by around 30 to 40 percent.
These numbers are accompanied by a report conducted by Update, which submits two reports every year on the state of the Indian economy. The organization's estimates look positive, as the nation's economic expansion is anticipated to rise to 5.6 percent in fiscal year 2015.
"With economic reforms gaining momentum, long-term prospects for growth remain bright for India," said World Bank Country Director in India Onno Ruhl, as quoted by the organization. "To realize its full potential, India needs to continue making progress on its domestic reforms agenda and encourage investments. The government's efforts at improving the performance of the manufacturing sector will lead to more jobs for young Indian women and men."
What will the GST provide for the country? World Bank Senior Country Economist in India Denis Medvedev noted this mandate will help India become a more conventional market and "eliminate inefficient tax cascading."
Whether or not the country is stable enough to support manufacturing customers is slowly becoming less of a debate.