Sourcing and Procurement from India: Production and Geographic Considerations

December 30, 2014 Posted by India Briefing Reading Time: 4 minutes

DELHI – The raw materials and equipment that a sourcing platform in India uses will impact not only the quality of its goods, but also the total expenditure of the operation itself. These will therefore further inform a company’s decision on where to locate their sourcing platform.

Equipment for Production

In order to guarantee that the products that are being produced are of high quality, it is important to ensure that the equipment being used is modern. If the equipment is found to be lacking, then there are several courses open to a company. Mainly:

Contact or, if lacking an office in India, have your partner contact, the National Small Industries Corporation Limited (NSIC). The NSIC is able to provide equipment to small industrial units on a long repayment basis, allowing a sourcing platform to acquire modern machinery without immediately having to pay the heavy price.

Import equipment from the parent company. Like any import, this option will require a company to go through the processes included in the regulations of the Foreign Trade (Development and Regulation) Act, but will bypass the cost involved in acquiring new equipment.

Sourcing and Procurement from India: Establishing an Office on the Ground

Procurement of Raw Materials

In India, domestic procurement is the most common means of acquiring the necessary materials for production. India possesses an exceptionally diverse economy that encompasses traditional farming, modern agriculture, and a multitude of contemporary industries. Locating the desired materials domestically should therefore pose little trouble.

Ideally, a sourcing operation should be located in an area which enjoys favorable taxation (such as an SEZ), is well placed to acquire the raw materials needed for production, and is positioned in an area well suited for export (i.e. on the coast). Previously, this was a difficult balance to strike, but the new government’s emphasis on infrastructural investment means that procuring materials from other parts of India is becoming a lot easier. Below is a graph showing coastal SEZs that have strong infrastructure links to other parts of India.

In most cases, locating a sourcing operation in one of these SEZs will allow a company to procure materials domestically and then quickly export them. However, in the event that the required raw materials cannot be obtained from within India, it will be necessary to import materials from abroad (external procurement), use those materials to produce the desired goods, and then export them. Government rules and regulations, listed in the Foreign Trade (Development and Regulation) Act, apply and have to be followed to do so.

This article is an excerpt from the November issue of India Briefing Magazine, titled “Establishing Your Sourcing Platform in India“. In this issue, we highlight the advantages India possesses as a sourcing option and explore the choices available to foreign companies seeking to create a sourcing presence here. In addition, we examine the relevant procurement, procedural and tax duty concerns involved in sourcing from India, and conclude by investigating the importance of supplier due diligence – a process that, if not conducted correctly, can often prove the undoing of a sourcing venture.”Establishing Your Sourcing Platform in India” is out now and available as a complimentary download in the Asia Briefing Bookstore.

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