India: A Growing Link in the Global Supply Chain

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However, for this movement to pick up momentum, the government needs to offer more incentives for research and adoption of these fuels. More state governments should follow the example of Delhi, where enforced use of compressed natural gas for commercial vehicles has led to cheaper transportation costs and a cleaner environment.

Power

Power generation, transmission, and distribution have historically been dominated by central and state government electricity boards. More than 86% of India's total capacity is owned by the central or state governments, with the private sector contributing just 13.5%. Saddled by transmission and distribution losses and rampant power theft, the state electricity boards have not been very efficient organizations, but private players have been unable to make significant inroads primarily because pricing remains subject to government control. Introduction of private power distribution players in Delhi and Mumbai has reduced theft and streamlined the distribution process. Kolkata's RP Goenka-owned Calcutta Electric Supply Corp. (CESC.BO), the city's sole electricity provider, has brought near self-sufficiency to Kolkata through a combination of adopting modern technology in power generation and an efficient distribution mechanism. It is a strategy worthy of emulation.

Three factors are crucial for growth and self-sufficiency in Indian power: a concerted public-private partnership in generation, transmission, and distribution; a financially viable pricing structure that is not subject to state government controls; and assured supply of fuel. Since a power plant and its fuel source could be in different states, a predefined, mutually acceptable agreement between the state governments to facilitate smooth supply is critical.

Steel

India is one of the world's leading iron ore exporters, but Indian steel manufacturers have had trouble obtaining it. Only a handful of manufacturers have their own captive iron ore mines; the rest depend on government-owned mines. Many states with high reserves have poor infrastructure. So in recent times global steel manufacturers have set up steel plants in raw-material-rich states such as Orissa and Bihar.

To drive growth in the Indian steel industry, the government should encourage investment in fresh mining of iron ore, coal, and gas. The government should also formulate a policy to encourage investors to buy (or lease) iron ore and coking coal deposits abroad. In the short term, the government should narrow the supply gap by diverting some iron ore exports to domestic steel producers. And since economy of scale is a proven success factor for growth in the steel industry, the government should encourage global manufacturers to tie up with Indian manufacturers.

Hardware and Consumer Electronics

Electronics hardware is one of the largest and fastest-growing industries in the world. The Indian government's special economic zone policy encourages duty-free imports and tax concessions. Global manufacturers such as Samsung, Nokia (NOK), Motorola (MOT), and Texas Instruments (TXN) have already established manufacturing operations in India. That's because the government allows 100% foreign direct investment in this sector. As per the investment commission's estimate, India is expected to attract a total of $6 billion to $10 billion in foreign direct investment by the end of 2010. With the availability of cheap skilled manpower, incentives on exports and imports, and an ever-growing domestic market, this industry should see rapid and continued growth in the next few years.

Samir Das is a Senior Consultant with the Enterprise Solutions Unit of Infosys Technologies and is based out of Chandigarh, India. He has over 11 years of experience in the IT industry and has worked on consulting assignments in the automobile, hi-tech and retail sectors.