The world has learned just how dangerous it is to depend on a single supply chain. Several nations are trying to reduce their dependence on China but it remains at the centre of global commerce. Therefore, nations worldwide are seeking alternatives to China’s supply chain. Presently, the global supply chains are controlled by China. In efforts to counter it, India is leading a new alliance, including India, Japan and Australia. They’ve struck a Supply Chain Pact with a mission to challenge China’s dominance as an exporter hub.
India’s prime minister Narendra Modi delivered a speech at the U.S-India summit 2020. He used the occasion to pitch India as the next export hub. He further mentioned that the global supply chains must be built on trust and not just on cost. This pandemic has also shown the world the importance of trust in developing global supply chains. With that statement, the Indian prime minister sent a clear message that the world cannot just depend on one source of goods and it certainly cannot depend solely on china. The world has learned this lesson the hard way.
India’s minister of commerce and industry Piyush Goyal suggested that sharing of information should lead to a capacity building which will further help in making the marching events more result-oriented. He further added that India under its production-linked incentive scheme is worth US$ 26 billion. This would cover 13 champion sectors in the coming five years to create and nurture manufacturing global champions for a self-reliant India, He also invited companies from Japan and Australia to utilize these incentives and increased their commercial viability while achieving diversification of supply chains.
QUAD allies Australia, Japan and India have come together to establish a supply chain resilience initiative (SCRI). After China dropped India from its south Asian covered action plan, the three nations initially met in September 2020 to discuss the prospects of trade diversification. The idea was to reduce their dependence on Chinese markets for finished goods and medical supplies during the pandemic, acknowledging the vulnerabilities of global supply chains. While the three nations have made attempts to lessen economic dependence on China, the prevailing conditions of assertive and unyielding china have led the three quad allies to set up a joint supply chain initiative. The trio has now decided to overcome the challenges by strengthening joint business projects through SCRI.
What does China think of SCRI?
Earlier China’s global times had criticized the SCRI and wrote that China should have been the core of global economic recovery. Zhao Lijian, China’s foreign ministry spokespersons stated that shifting industrial chains is against economic laws and that it would disrupt global supply chains. The initiative appears to be pinning hopes on India reeling under the pandemic. Given its dense relationship with China, Australia and Japan might be expecting India to lead the SCRI alliance and replace China’s role in its economy. It’s acceptable since India has the same demographic dividend as China had decades ago. However, it remains debatable if India can
undertake such a critical role to counter china’s supply chain dominance.
India has made sincere efforts to promote industrialization. Nevertheless, its manufacturing bottlenecks are unlikely to be addressed anytime soon. With rising coronavirus cases the Indian economy is taking its worst hit for decades.
How will nations implement SCRI?
A combined decision was made by the trade ministers of the three nations of the alliance namely, India, Japan and Australia. A proposal was put forth by the Indian Prime Minister to reshape the global supply chains based on trust and stability. They have decided to build a “resilient supply chain” and its impact is beginning to show.
In March, the government of India announced incentives for niche firms. Under this incentive, companies which manufacture in India will be eligible for a payment of 4% to 6% of their incremental sales over the next five years. This attractive pitch will enable the companies to improve their bottom line along with tax savings. The global electronics manufacturers are interested in India’s decision. Most of them have plans to set up mobile manufacturing units in the nation and about two dozen companies have pledged US$ 1.5 billion worth of investments.
Meanwhile, Japan is taking special steps to create the indo-pacific supply chain. It is encouraging companies to leave China by offering subsidies to those firms. For this, Tokyo has set aside US$ 221 million for companies that exit china and move back to Japan or to Southeast Asia. Japan expanded its subsidy program by including India and Bangladesh on the list. In doing so, Japan has publicly acknowledged its alliance with India and its preference over China in terms of doing business. If a company wants to relocate from China to India, the government of Japan will incentivize it and give it a subsidy. About 30 Japanese companies have already signed up to move from China to Southeast Asia and now with the addition of India and Bangladesh, those numbers are expected to grow further.
Last year, Australia demanded an investigation into the origins of the COVID19 virus. What began as a mere conflict between the two nations soon turned into a trade battle. Naturally, China was upset and imposed tariffs on Australian imports and banned Australian goods. This further resulted in Australia joining hands with India and Japan to find new markets for its goods and companies. The alliance aims to achieve economic distancing from China, pulling global business away from China creating new supply chains
The latest initiative came after China joined hands with Asian neighbours namely, Pakistan, Afghanistan, Nepal, Sri Lanka and Bangladesh to set up COVID 19 emergency supplies reserves to help them fight the pandemic. In recent times, Indian has been hit by a massive second wave of the COVID19 and its overdependence on China for the supply of crucial commodities has revealed the vulnerability of the trading economy. Together with Australia and Japan, India’s national planning are a clear reference to this effect.
China’s belligerence even during the pandemic has aligned the three nations in their shared goal to stand up to China. They aim to reduce Chinese economic influence and limit its interference and its diplomacy tactics. The formation of SCRI was formally announced during a trilateral ministerial meeting held virtually on April 27th. Trade ministers of India, Japan and Australia attended the meeting that was followed by a joint statement after talking about the supply chain vulnerabilities. The statement mentioned the importance of risk management and continuity plans to avoid supply chain disruptions which can be tackled through enhanced utilization of digital technology and supporting trade and investment diversification.
India’s focus is on becoming a manufacturing hub at the core of new supply chains. The initial projects of SCRI would include sharing of best practices on supply chain resilience. This includes holding investment promotion events and buyer-seller marching events to provide opportunities for stakeholders to explore the possibility of diversification of their supply chains. The ministers also decided to convene at least once a year to guide the implementation of the initiative and recognized the role of business and academia in the initiative.