Editorial Notes

[Editorial Notes] Supply Chain Resilience Initiative of Japan

India definitely needs to diversify its supply chain, either by trade partnership with other countries or by being self-reliant.
By IASToppers
September 01, 2020

Contents

  • Introduction
  • Supply chain resilience
  • Japan’s proposal
  • Japan-India as partner for SCRI
  • Does India gain or lose?
  • Conclusion

Supply Chain Resilience Initiative of Japan

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Introduction:

Japan has proposed Supply Chain Resilience Initiative (SCRI) as a trilateral approach to trade, with India and Australia as the other two partners. The move comes at the time of COVID-19 pandemic and trade tensions between China and the United States threatening supply chains. The initiative is at the strategy stage presently and has some way to go before participants can realise trade benefits.

Supply chain resilience:

  • In international trade, supply chain resilience is an approach where a country diversifies its supply risk across a range 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 — can disrupt supplies from a particular country or even intentional halts to trade, adversely impacting economic activity in the destination country.

Japan’s proposal:

  • Japan has taken the initiative to include India and Australia, and potentially other Asian and Pacific Rim nations later in a strategic dialogue and SCRI.
  • Japan imported 24% of its total imports from China.
  • Japan’s imports from China fell by half in February 2020, when China was battling the peak of the virus impact.
  • The COVID-19 has brought into sharp focus that if a country is heavily dependent on supplies from a single country, 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.
  • Further, the U.S.-China trade tensions have caused alarm in Japanese trade circles and can threaten globalisation as a whole.

Japan-India as partner for SCRI:

  • Japan is the fourth-largest investor in India with cumulative foreign direct investments (FDI) touching $33.5 billion in the 2000-2020 period accounting for 7.2% of inflows.
  • Imports from Japan into India more than doubled over 12 years to $12.8 billion in FY19.
  • Exports from India to Japan (world’s third-largest economy) stood at $4.9 billion in FY19.
  • Almost 1,400 Japanese companies are operating in India which is a clear reflection of a long-standing and deepening trade relationship.

Does India 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.
  • China’s share of imports into India in 2018 stood at 14.5%.
  • India is fully dependent on China in areas such as Active Pharmaceutical Ingredients for medicines such as paracetamol etc.
  • In electronics, China accounts for 45% of India’s imports and Chinese supplies dominate segments of the Indian economy.
  • Sectors in India impacted by supply chain issues due to pandemic include pharmaceuticals, automotive parts, electronics, shipping, chemicals and textiles.
  • India definitely needs to diversify its supply chain, either by trade partnership with other countries or by being self-reliant (Atma Nirbhar Abhiyan).

Conclusion:

  • While India appears an attractive option for potential investors both as a market and as a manufacturing base, India apart from the tax incentives, needs to accelerate progress in ease of doing business and in skill building.
  • If India enhances self-reliance or works with exporting nations other than China, it could build resilience into the economy’s supply networks and the Supply Chain Resilience Initiative of Japan may be the right move in the direction.
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