Context: In a move to counter China’s dominance of supply chain in the Indo-Pacific region, trade ministers of India, Japan and Australia have formally launched the Supply Chain Resilience Initiative (SCRI).
Background
- 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.
- Importance: In 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.
About SCRI
- It 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.
- 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.
Possible policy measures under the initiative may include
- supporting the enhanced utilization of digital technology.
- supporting trade and investment diversification.
Significance
- It aims to reduce dependence on China amid a likelihood of rechurning of supply chains in the Indo-Pacific region amid the Covid-19 pandemic.
- It 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.
Objective
- To attract foreign direct investment to turn the Indo-Pacific into an “economic powerhouse”.
- To build a mutually complementary relationship among partner countries.
- To work out a plan to build on the existential supply chain network. Japan and India, for example, have an India-Japan competitiveness partnership dealing with locating the Japanese companies in India.
Reasons for the Initiative
Covid-19 Realization: With spread of Covid-19 globally, it has been realized that dependence over a single nation is not good for both global economy and national economies:
- Assembly lines are heavily dependent on supplies from one country.
- The impact on importing nations could be crippling if the source stops production for involuntary reasons, or even as a conscious measure of economic coercion.
USA-China Trade Tensions: The tensions began when the United States and China both applied tariff sanctions on eachother.
India as an Emerging Supply Hub: The businesses have started seeing India as a “hub for supply chains”.