With Covid-19 grapples and the rising trade tensions between China and the United States threatening global supply chains, Japan has introduced the Supply Chain Resilience Initiative (SCRI) as a fresh perspective on trade. The trilateral approach prominently features India and Australia as crucial partners in this initiative.
Understanding Supply Chain Resilience
In the context of international trade, supply chain resilience is a strategy that allows a country to diversify its supply risk across multiple nations rather than depending on a single country or a limited number. This approach gains importance during unanticipated events like natural disasters, pandemics, or even armed conflicts that disrupt supplies from a certain country, which can have severe impacts on the economic activities of the destination country.
The Supply Chain Resilience Initiative
The SCRI, first proposed by Japan with India and Australia as the main partners, is an initiative aimed at reducing dependency on a single nation, particularly China at present. Originating as a reaction to concerns over Chinese political behaviors disrupting the supply chain, the initiative may later extend to other Asian and Pacific Rim nations.
Objectives of the Initiative
One of the key objectives of the SCRI is to attract foreign direct investment to turn the Indo-Pacific into an “economic powerhouse”. It aims to build complementary relationships among partner countries and plans to enhance the existing supply chain network. For instance, Japan and India have an India-Japan competitiveness partnership dealing with the settlement of Japanese companies in India.
What Triggered the Initiative?
The ongoing Covid-19 pandemic has established that relying heavily on a single nation isn’t beneficial for both global and national economies. This dependency can have crippling impacts on importing nations if the supplying country halts production due to unavoidable circumstances or even as a deliberate measure. The ongoing USA-China trade tensions have further complicated the situation, prompting countries to reconsider their supply chain strategies.
India as a Supply Hub
Recently, businesses have started viewing India as a potential hub for supply chains. Considering the top 20 items supplied by China, the country’s share of imports into India stood at 14.5% in 2018, according to the Confederation of Indian Industry. Chinese supplies dominate various segments of the Indian economy, including pharmaceuticals, automotive parts, electronics, shipping, chemicals, and textiles.
The Indo-Japan Trade Relationship
Japan stands as the fourth-largest investor in India, with cumulative foreign direct investments amounting to USD 33.5 billion from 2000-2020, which accounts for 7.2% of inflows in that period. Exports from India to Japan stood at USD 4.9 billion for FY19, while imports from Japan to India more than doubled over 12 years to USD 12.8 billion in FY19.
Suggestions for India
To build resilience into the economy’s supply networks, India needs to enhance self-reliance against China. This includes accelerating progress in ease of doing business, offering tax incentives, boosting domestic manufacturing, and restructuring infrastructure. Additionally, there is a need to push through legislations aimed at addressing structural bottlenecks (in Land, Labour, Law, Liquidity) that hinder domestic competitiveness. Despite banning Chinese imports, India should negotiate trade by trade and lobby for a more liberalized service sector in China.