Reviewing Chinese FDI
China is exploiting globalization in a way that's harmful to other countries around the world... Read more
Global Supply Chains
1. The COVID 19 pandemic has disrupted the supply chains and countries are dependent on other countries for items of basic necessities including pharmaceuticals.
2. So, the nations should build supply chains inside the country.
Where does it make an impact?
1. China has monopolized the world trade as more than 9 lakh companies are operating in China. So, during the pandemic
i. The supply disrupted as manufacturing process stopped in China.
ii. This has led to shortage of medicines, manufacturing, Infrastructure etc. across the world.
2. Every country would now move towards the protectionism, atleast in essential commodities like medicines, infrastructure etc.
3. As per WTO, global trade for 2020 will see a downfall ranging from 13% - 32%.
4. IMF has forecasted 3% economic slowdown that will surely jeopardize economic activities of many countries.
5. Idea of realigning towards self-sufficiency would be prioritized by the governments through the policy interventions.
6. There is a 30% rise in price of cargo flights from China to North America and 60% for between Europe and America.
7. It will have a spillover effect on food and medical supply if the restrictions continue further.
8. Due to the spillover effect, the oil prices went into the negative, especially the Brent crude.
How can the supply chains be restored?
1. Multilateral institutions like the World Bank, IMF and the Bank for International Settlements in coordination with the countries have to look for a recovery path.
2. The production can be started first to promote consumption as it will pay the suppliers and the employees. This creates demand at both ends and restarts the supply chain.
3. Focus on the production process will also allow the shipping lines to be repaired.
4. As major banks across the world have felt the shock, they need to be supported to revive the financial situation.
5. As countries are apprehensive of China, India can be a viable country in terms of size both geographical and the available labor force to become the hub of production.
Why India has better opportunity?
India can become a manufacturing hub because of
1. The skilled and vast labor force.
2. A democratic country that is transparent and accountable.
3. Virgin areas in North-East India.
4. Large geographic size and the market.
5. Industrial hubs in Gujarat and Maharashtra can be producing houses.
6. Huge demographic dividend.
Which are the measures to be taken?
1. Series of reforms are needed to make the companies set a business in India.
2. Indian industries have to first start their own production for the domestic market. This will interest the industries abroad to invest in India.
3. India has to work to revive the manufacturing sector that has been shrinking in the last few decades to attract investments.
4. Favorable conditions in terms of efficient labor laws, cost of electricity, fiscal incentive for private sector, interest rates, ease of doing business etc. are needed.
5. Stimulate the financial sector and get the money flow in the economy.
6. Focus on the SME sector that can make India a manufacturing center that can actually start producing goods on a vast scale.
7. Further integration with the ASEAN countries and signing of a good trade agreement is necessary to be part of the world manufacturing center.
8. Indian industry’s concerns towards many of the trade agreements need to be sorted out carefully and quickly.
9. Transportation within the country needs to be more economical and efficient for India to become a major player in the global supply chain.
10. Instead of depending on China, India has to move towards becoming self-sufficient in APIs and bulk drugs.
What should be the initial steps?
1. The trade associations should be taken along to get industry from across the world to come and set up operations in India.
2. India should take advantage of the booming stock market.
3. Experience in setting up export processing zones can be used to invite foreign investment, foreign production by providing world-class infrastructure and world-class law.
4. Policymakers in consultation with the private sector need to identify sectors to focus upon and make sector-specific policy interventions.
5. SEZs can play a better role in reviving economy and help better integrate India into the global supply chain.
6. Fiscal and labor reforms are required as a lot of informal labor have been displaced because of the present crisis.