- With COVID-19 and trade tensions between China and the United States threatening supply chains or actually causing bottlenecks, Japan mooted the Supply Chain Resilience Initiative (SCRI) in 2020 as a trilateral approach to trade, with India and Australia as the other two partners.
What does supply chain resilience mean?
- In the context of international trade, supply chain resilience is an approach that helps a country to ensure that it has diversified its supply risk across a clutch of supplying nations instead of being dependent on just one or a few.
- Unanticipated events — whether natural, such as volcanic eruptions, tsunamis, earthquakes or even a pandemic; or manmade, such as an armed conflict in a region — that disrupt supplies from a particular country or even intentional halts to trade, could adversely impact economic activity in the destination country.
- The COVID-19 pandemic has brought into sharp focus that when assembly lines are heavily dependent on supplies from one country (in this case- China), the impact on importing nations could be crippling if that source stops production for involuntary reasons, or even as a conscious measure of economic coercion.
- In recent years, electrical and electronic gear, and machinery, nuclear reactors and boilers were sectors that clocked up significant imports from China into Japan.
- So, any halt to supplies (as it happened when China had to shut down factories in regions hit by the SARS-CoV-2 virus that has caused the COVID-19 pandemic) could potentially impair economic activity in Japan.
Why in News?
- In a move to counter China’s dominance of the supply chain in Indo-Pacific region, trade ministers of India, Japan and Australia have formally launched the Supply Chain Resilience Initiative in a virtual trilateral ministerial meeting.
- The SCRI aims to create a virtuous cycle of enhancing supply chain resilience with a view to eventually attaining strong, sustainable, balanced and inclusive growth in the region.
- In 2019, the cumulative GDP of the three countries was $9.3 trillion, while cumulative merchandise goods and services trade were $2.7 trillion and $900 billion, respectively.
- Initially, SCRI will focus on sharing best practices on supply chain resilience and holding investment promotion events and buyer-seller matching events to provide opportunities for stakeholders to explore the possibility of diversification of their supply chains.
- Responding to the launch, China’s Foreign Ministry described the move as ‘unrealistic’ which said the formation and development of global industrial and supply chains are determined by market forces and companies choices.
What does India stand to gain, or lose?
- Following the border tensions between India and China, partners such as Japan have sensed that India may be ready for dialogue on alternative supply chains. Earlier, India would have done little to overtly antagonise China.
- But an internal push to suddenly cut links with China would be impractical. China’s share of imports into India in 2018 (considering the top 20 items supplied by China) stood at 14.5%. In areas such as Active Pharmaceutical Ingredients for medicines such as paracetamol, India is fully dependent on China. In electronics, China accounts for 45% of India’s imports.
- Chinese supplies dominate segments of the Indian economy. Sectors that have been impacted by supply chain issues arising out of the pandemic include pharmaceuticals, automotive parts, electronics, shipping, chemicals and textiles.
- Over time, if India enhances self-reliance or works with exporting nations other than China, it could build resilience into the economy’s supply networks.
- While India appears an attractive option for potential investors both as a market and as a manufacturing base, trade experts point to the need for India to accelerate progress in ease of doing business and in skill building.
- Tax incentives, as the one recently announced to compete with the likes of Vietnam and the Philippines for investments in manufacturing, alone may not suffice.