Supply Chain Resilience Initiative

Background

• • In 2021, India, Japan and Australia formally launched the Supply Chain Resilience Initiative (SCRI) to build resilient supply chains in the Indo-Pacific region as they seek to reduce dependence on China
  • The need for such an Initiative:
    • There is a palpable change in geopolitics and geo-economics taking place; the US-China trade war, the outbreak of the COVID-19 pandemic, and a breakdown of the multilateral system, which are forcing an evaluation and reconfiguration of global supply chains
    • Today there is global consensus that nations have to design their foreign trade policy in a manner that addresses vulnerabilities, manages disruptions, and reduces concentration. India could leverage this chance to attract Global Value chains, to explore partnerships with strategically and geopolitically aligned nations such as the members of the QUAD

Aims of SCRI:

• • The SCRI aims to reduce dependence on China amid a likelihood of re-churning 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
  • The initiative include sharing of best practices and holding investment promotion events aimed at supply chain diversification amid the Covid-19 pandemic that has “revealed supply chain vulnerabilities globally and in the region”
  • Noting the importance of risk management and continuity plans, the policy measures may include supporting the enhanced utilization of digital technology, and trade and investment diversification
  • To build a mutually complementary relationship among partner countries.

Possibilities for India through SCRI

• • Financing for resilience
    • India’s foreign direct and foreign institutional investments come mainly from the capital-rich countries of the G7 and OECD such as the US, UK, Europe, and Japan
    • India can be an ‘economic pivot’ for the Quad in the Indo-Pacific, if the Quad can commit financing to support its entry into Quad-led global supply chains
  • Attracting technology multinationals
    • Nearly 40 percent of all FDI into India since 2000 has flowed to the sectors of electronics, electrical machinery, and telecommunications
    • Still, India remains worryingly dependent on China, particularly on electrical machinery: China constitutes nearly 60 percent of the country’s imports in that segment
    • So with SCRI, India could position itself as a global hub for Electronic System and Design
  • Addressing raw-material dependencies
    • The critical minerals that India needs for new-age industries such as electronics and renewable energy come from limited sources
    • The International Energy Agency reports that China extracts 60 percent of rare-earths and 64 percent of graphite, but it also processes 58 percent of lithium, 65 percent of cobalt, 35 percent of nickel, and 40 percent of copper.
      • But, India is estimated to have the fifth largest deposits of rare-earths but accounts for only 2 percent of global production
    • Thus, with investments from the Quad, India can develop its own base of rare-earths and even collaborate on developing technologies that rely less on these critical minerals

Limits of SCRI and Possible solutions

• • Although primarily a geo-economic mechanism, the SCRI risks losing focus amid the intensifying regional power rivalry
    • Despite a necessity brought about by the Pandemic, emphasis on supply chain management is frequently ignored in media in favour of strategic positioning vis-a-vis China
    • However, the SCRI does not aim to entirely re-route existing supply chains; this would require complete economic decoupling from China, an unfeasible (and undesirable) goal considering Beijing’s economic clout
    • Solution: So, rather than isolating China, aim should be to ensure national economies can withstand adversity
  • The SCRI remains far-fetched, even overly ambitious. Despite their broad-based synergy on China (or matters relating to China), the main proponents of the SCRI—Australia, India, and Japan—have gaps in their global multilateral practices, including trade and economic outlooks, which might limit the progress of SCRI
    • For example, Japan’s reluctance to support the expansion of the G7 to include India and Australia highlights how national interest considerations supersede any prospects of regional cooperation
    • Solution: Japan is a trading economy, and supply chains are critical to its growth. This is not true for India, which prioritizes manufacturing and innovation, even while aspiring to enhance integration with other economies before it can emerge as a trading nation. Hence, the need to realign priorities
  • Also, no clear vision currently exists among SCRI founders on how to shape their initiative.
    • To succeed, a clear plan or charter is vital. The lack of a guiding document risks hampering cooperation, as has been the case with the Quad and Quad-plus, which has only picked up steam over the past year amid increased tensions with China
    • A similar problem emerged with the Asian Infrastructure Investment Bank and Regional Comprehensive Economic Partnership
    • Solution: These examples show the need for a common understanding, agreed framework, and concentrated dialogue to shape and implement the initiative. A charter would be useful in laying down expectations and requirements for the SCRI
  • The SCRI remains limited to its founding members.
    • Solution: With its focus on recalibrating global supply chains, expansion to include the United States must be explored
      • This would make the SCRI a derivative of the Quad, strengthening the Indo-Pacific concept and furthering their supply chain goals

Way Forward

• • Going forward, the SCRI must consider full/partial participation of key economies and economic blocs—including ASEAN, the European Union (especially France, given its Indo-Pacific focus), and the United Kingdom
    • While the SCRI might be an Asian exercise, its ambition to create diverse, expansive, inclusive, and resilient supply chains mandates involvement by other major and middle-ranked economies everywhere.
    • Moreover, the participation of technologically advanced actors beyond Asia would prove crucial given the SCRI’s focus on digital technologies.
  • On the whole, Despite its merits, the SCRI is structurally limited right now
    • Yet with economic transformation and post-pandemic recovery shaping regional power distribution, the expectations for the SCRI are immense.
    • To meet expectations, the Australia-Japan-India trilateral must acknowledge the challenges and shape the initiative adequately to overcome them.

Mains Question:

1. Critically Examine, if the aims of the SCRI are in alignment with possibilities the initiative has to offer for India. (250 Words)