Supply Chain Resilience Initiative (SCRI)

WHY IN NEWS:

• The Trade Ministers of India, Japan and Australia formally launched the Supply Chain Resilience initiative in a Trilateral Ministerial Meeting held virtually on 27^th April 2021

WHAT IS SUPPLY CHAIN RESILIENCE?

• In case of unanticipated events such as pandemic, tsunamis or an armed conflict >> supplies from a particular country would be disrupted and hence could adversely impact economic activity in the destination country.
• 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.

ABOUT SCRI:

• With COVID-19 and trade tensions between China and the United States threatening global supply chains or actually causing bottlenecks, Japan has mooted the Supply Chain Resilience Initiative (SCRI) as a trilateral approach to trade, with India and Australia as the other two partners.
• 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 Indo-Pacific region
• Its objectives are:
  • Develop an alternative supply chain network centered on the Indo-Pacific.
  • Create a free, fair, inclusive, non-discriminatory, transparent, predictable and stable trade and investment environment
  • To dilute the Chinese economy’s influence in the region
• SCRI seeks to build upon the existing bilateral frameworks like the Asean-Japan Economic Resilience Action Plan and India-Japan Industrial Competitiveness Partnership and attract foreign direct investment in the region.
• Possible policy measures may include:
  • (i) supporting the enhanced utilization of digital technology
  • (ii) supporting trade and investment diversification

NEED FOR SCRI

• Chinese dominance over global trade:
  • It has been a major concern for over a decade now.
  • China has become the world’s largest trading nation and the largest trading partner for over 100 countries.
  • It has also built a formidable trade deficit against all its major partners.
• Vulnerability of global supply chain:
  • Production disruption in China due to COVID pandemic sent shock waves throughout the global supply chain, affecting production operations all across the world.
  • It has been a wake-up call for the major powers to address the issue of their supply chain becoming China-centric.
• Coercive strategy used by Beijing
  • The coercive strategy used by Beijing during this pandemic deviates from its earlier tactics of incentivising trade and investments
  • Beijing is currently making use of its economic prowess to threaten an import ban on countries that are blaming it for the pandemic outbreak.
  • This was a nudge to diversification of risk >> where manufacturing lines could be relocated out of China to other third countries.
• U.S - China trade tensions
  • If the world’s two largest economies do not resolve their differences, it could threaten globalisation as a whole and have a major impact on international trade
  • An alternative like SCRI is the need of the hour to maintain a rule-based global trade

BENEFITS OF SCRI:

• Economic gains:
  • Check global supply chain’s over dependence on China:
    • The SCRI would enable the building of a resilient supply chain that is either independent or barely dependent on China.
  • Act as a cushion against unforeseen supply chain disruption:
    • This would prevent supply chain disruption as seen during the initial stages of the pandemic when the ceasing of production from China had caused cracks in several supply chains across the worlds.
  • Improve Indo-ASEAN economic relation:
    • For India, SCRI offers a chance to initiate better economic and diplomatic ties with the ASEAN, which have suffered after New Delhi’s withdrawal from Regional Comprehensive Economic Partnership (RCEP).
    • This is an alternative for the pursuance of India’s Act East Policy.
  • Better economic prospects for India
    • SCRI would likely mean an increase in inward investment into India for manufacturing purposes.
• Political gains:
  • SCRI would also counter China’s political aggression with many countries across the world.
  • For example: territorial claims in South China Sea, border tensions in Ladakh etc.
  • Tensions with Beijing are a common trait across most of the Indo-Pacific.
• Strategic gains:
  • Redistribute China’s economic power in the region:
    • SCRI has the potential to boost economic recovery in the region and redistribute China’s economic power.
    • SCRI helps countries like India, Japan and Australia to increase their presence in the Indo-Pacific and counter China’s dominance in the region.
  • Improve strategic and economic autonomy of ASEAN
    • SCRI could be expanded to the members of the Association of Southeast Asian Nations (ASEAN).
    • The ASEAN nations are currently restraining their choices, as China is the only viable partner in many cases.
    • In reducing their dependence on China through SCRI, they can better manage their risks.

CHALLENGES

• Australia and Japan have a significant portion of trade depending on China:
  • Decoupling from the Chinese economy would be challenging for Australia and Japan.
  • Compared to India’s low-level economic engagement and relatively low trade volume with China, Australia and Japan have a significant portion of trade depending on it.
  • For example:
    • The bilateral trade between China and Australia is worth $184 billion and Japan’s bilateral trade is $304 billion.
    • China has been Australia’s largest trading partner and that it counts for 32.6% of Australia’s exports
• India’s unpreparedness:
  • Despite its size, India lacks necessary policies to provide alternatives to China within certain supply chains.
  • The Make in India and other similar government initiatives have failed to provide the intended results.
  • It consistently fails to make use of its comparative advantage in manufacturing.
  • Initiatives like Atmanirbhar Bharat are focused on supporting domestic industries rather than increasing foreign participation.
• Delinking China from India’s trade is impractical
  • China still remains a large source of critical imports for India, from mobile phone components to pharmaceutical ingredients.
  • An internal push to suddenly cut links with China would be impractical.

WAY FORWARD:

• Focus on certain sectors:
  • In short term, India can use Atmanirbhar Bharat along with stimulus proposals and stable regulations to challenge China in telecom and technology, auto, cellular, textiles and pharmaceutical industries.
• Improving India’s manufacturing capabilities:
  • Infrastructure development, accelerate progress in ease of doing business and in skill building should be ensured >> to compete with China in international trade.
• Multinational companies should diversify their supply chain
  • MNCs could adopt a ‘China+1’ strategy to diversify supply chain so as to manage their prices and supply volatilities.
  • This is to reduce the risk of becoming a hostage to China’s whims.

CONCLUSION

• 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 >> thus achieving the objectives of SCRI

PRACTICE QUESTION:

Q. In the context of Chinese dominance in international trade, examine the relevance of Supply Chain Resilience Initiative (SCRI)