Context

• With the COVID-19 pandemic and growing trade tensions between China and the United States, Japan has mooted the Supply Chain Resilience Initiative (SCRI).

What is Supply Chain Resilience?

• 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.
• addressing the impact on economic activity due to disruption in supply chains caused by unanticipated events i.e. natural calamities such as volcanic eruptions, tsunamis, earthquakes or even a pandemic; or manmade, such as an armed conflict in a region.

About Supply Chain Resilience Initiative

• Proposal of Japan as a trilateral approach to trade, with India and Australia as the other two partners.
• Direct response to the individual economies and companies who are concerned about the Chinese political behavior and disruption to the supply chain.
• The two-fold objectives of the SCRI are:
  • Attract foreign direct investment to turn the Indo-Pacific into an ‘economic powerhouse’; and
  • Build a mutually complementary relationship between the partner countries.

Why Japan proposed the Supply Chain Resilience Initiative?

• Japan exported $135 billion worth of goods to China in 2019 while imported $169 billion worth from China but the COVID-19 pandemic has led China to shut down its market and disrupted the supply to Japan.
• The growing trade tension between US and China has caused alarm in Japanese trade circles and 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 Japan.

Why Japan chose India as a partner of Supply Chain Resilience Initiative?

• Japan is the fourth-largest investor in India with cumulative foreign direct investments touching $33.5 billion in the 2000-2020 period accounting for 7.2% of inflows.
• The imports from Japan into India have more than doubled over 12 years to $12.8 billion in FY19 and the exports from India to the world’s third-largest economy stood at $4.9 billion in 2019-20.
• India is home to at least 1400 Japanese companies which are operating in India which gives a clear picture of long-standing and deepening trade relations.
• India also appears to be an attractive option for potential investors both as a market and as a manufacturing base.
• India and Japan have an Industrial Competitiveness Partnership (Indo-Japan) in existence which co-operates with Japanese businesses to set up their trade in Indian markets.

Impact on India

• It is significant that Japan has taken the initiative to include India and Australia, and potentially other Asian and Pacific Rim nations later, in a strategic dialogue.
• The recent border stand-off between India and China has led Japan to partner India through a dialogue on alternative supply chains and this move will certainly antagonise China.
• India should enhance its self-reliance or works with exporting nations other than China which could help in building resilience into the economy’s supply networks.
• India has been dependent on China on various products such as Active Pharmaceutical Ingredients for medicines such as paracetamol and an internal push to suddenly cut links with China would be impractical.

Source: The Hindu/Economic Times