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Supply Chain Expansion To Aid Emerging Markets: Fitch Ratings

Updated: Dec 07, 2023 01:33:36pm

Supply Chain Expansion To Aid Emerging Markets: Fitch Ratings

New Delhi, Dec 7 (KNN) Diversifying supply chains will facilitate the Indian economy to enhance their global trade contributions, highlighted Fitch Ratings, in a report on Wednesday.

The report also anticipated that near-shoring and friend-shoring would positively impact the prospects of emerging market economies.

“India is the only country with a large and rapidly growing consumer market and vast labour force on a scale that rivals China for growth potential. Companies are likely to be attracted to access this market, with supply-chain considerations acting as a secondary benefit,” it said. 

The rating agency, in its report from last month, forecasted a 6.3 per cent growth for the Indian economy in FY24, with a sustained growth rate of 6.5 per cent through FY28.

The upward revision of India's potential growth outlook was attributed to enhanced employment rates and increased labour productivity.

“Many Southeast Asian countries have competitive labour forces, where wages are considerably lower than China, including India, Malaysia, Indonesia, Thailand and Vietnam,” the agency noted. 

It commended India's initiatives to attract manufacturing through the production-linked incentive scheme, aiming to leverage the China+1 strategy.

“Such investments hold potential for establishing India as part of global supply chains if companies see success in their initial investments in India and if it helps to foster an ecosystem of upstream manufacturing and industry,” the report said, pointing to success stories like Foxconn and Apple. 

Fitch Ratings also pointed out concerns, attributing them to India's comparatively high tariff system and gaps in labour skills.

“India has a highly skilled workforce in the burgeoning high-tech services exports sector. But in terms of broader educational quality and manufacturing technical skills, India lags behind many other prospective China +1 candidates,” it pointed out. 

India's infrastructure quality competes with Southeast Asian economies, but it lags behind Vietnam in mean years of schooling and falls below Indonesia and Vietnam in terms of productivity.

The report emphasized that states could have a greater impact in attracting increased Foreign Direct Investment (FDI).

“Reform progress in India is likely to be gradual, but we expect the pace at the state level to accelerate and be an important factor in bringing greater FDI to India,” the report said.

(KNN Bureau)


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