Geopolitics spurs India to become dominant player in global supply chain

Last updated on October 21, 2020

China accounted for one-third of the global trade and dominated the world’s supplies of raw material and intermediate goods. However, with the Sino-US tariff war, businesses in the US, Canada, Australia, and in many European countries, began exploring options outside of China. Covid-19 has only accelerated that process.

Recently I was happy to participate in a webinar organized by ReNew Foundation and IIM Calcutta to discuss many of these issues. The webinar debated the impact of Covid-19 on businesses with significant exposure to China. I thoroughly enjoyed debating this very exciting topic with an eminent panel consisting of Merit E Janow, the Dean of School of International and Public Affairs at Columbia University; Amitabh Kant, CEO of the NITI Aayog; Dr. Mukesh Aghi, President at the US-India Strategic Partnership Forum; and Dr Anju Seth, Director IIM Calcutta. The panel was anchored by R. Sukumar, the Editor-in- Chief of Hindustan Times. The debate focused on whether the time is ripe for the global trade to diversify supply chains, and how India can seize the opportunity of becoming a major player in the global supply chain by lending scale and size to its manufacturing industry. 

The manufacturing roadmap

India has the leadership, skill and space to realize the big idea of becoming a manufacturing powerhouse. Mr Amitabh Kant shared a multi-pronged strategy to make Indian businesses globally competitive which included empowering the manufacturing sector with size and scale; and identifying 8-10 key sectors which have the potential to become global champions.

 One can’t agree more with Mr Kant that Indian policymakers have eventually understood the need to strengthen manufacturing sector in the country. With Government’s stimulus to businesses, like Production Linked Incentives; focus on self-reliance or atmanirbharta; and digital transformation gathering pace- all are contributing to creating an ecosystem for entrepreneurship to thrive.

Similarly, we also need to strengthen our manufacturing base, and nurture and protect our infant industries by levying time-bound tariffs on the imported finished goods. The industries, as they mature, would be ready to compete with dominant supply chain powerhouses like China.

 Ease of doing business

India ranks 63 on the World Bank’s Ease of Doing Business index comprising 190 economies, and has significantly improved the ranking from 134, where it placed five years ago. The country is aiming to get into the pool of top 50 economies this year, and subsequently into the top 25 in the next three years. Bringing in the next round of financial sector and labour reforms, and better trunk infrastructure would be just the ticket.

 Sustained focus on infrastructure

India seeking to lure businesses out of China can reap further advantage by fast-tracking foreign investment proposals. Assured quality infrastructure, especially industrial corridors with a ‘plug and play facility would surely help. Contribution of the wind and solar to the country’s installed capacity is on the rise. No more proofs are needed to show how renewable energy capacity cleanly and efficiently meets the energy needs and significantly adds capacity to our power sector.

 The timing wouldn’t have been more perfect than now to transmute the interest of the investor community into action. ‘India has the potential to become the natural choice from a geopolitical perspective and market choice perspective too’. This came straight from Dr Mukesh Aghi during the webinar, who reiterated that India and the West should leverage the opportunity of fissures that are growing between China and the rest of the world and emphasized that it is the geopolitics that will define the global supply chain in the days to come. The shift, as Dr Aghi said, will take place in the mid-term to long-term, somewhere in 24 to 36 months period.

 Technology- the modern lever of power

Not just manufacturing or infrastructure, technology and innovation also play a crucial role in the rise of a potential global power. Dr Anju Seth emphasized that India should explore global partnerships for its technological advancement. She cited how China not only got financial investment, but even gained an edge in technology through the joint ventures, and learned it so well, that today the country is at the forefront of leading technologies of the world like AI.

 The global economic crisis has made businesses across geographies wary of keeping their supply chains confined to one large basket. Many governments including India have tightened the screening of foreign investments to secure domestic firms from predatory acquisitions, and this should not be viewed as the end of globalisation. Dean Janow rebuffed such worries and said that the pandemic has only revealed heightened concerns about vulnerabilities that the countries face due to the lack of control over their supply chain.

Any threat to globalization should be deemed a far-fetched thought because very few countries can come anywhere close to producing all that they need, whatever they need, whether goods or services or agriculture.

Source: LinkedIn

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