Resilient Supply Chain Initiative (RSCI) and its Prospects

Dr. Amitendu Palit's picture

Covid-19 is refashioning relations among countries. One example is the Resilient Supply Chain Initiative (RSCI), proposed by India, Japan, and Australia, which aims to assemble a coalition of countries, ostensibly middle powers and reasonably large economies, to restructure supply chains in a way that reduces economic dependence on China. The wellspring of the RSCI was the Covid-19 epidemic which seriously interfered with the normal functioning of supply chains in the Asia-Pacific Region (APR). The initial disturbance flowed from supply chain problems within China. Various large regional economies in the region, including the three aforementioned countries, experienced adverse effects because a number of their industries rely on inputs from China for making final products. In addition, these countries depend on China for various essential consumer items and machineries. The disruption in supplies and regional production networks drove home the need for alternative supply locales. The potential downsides of economic dependency on China were further exacerbated because political relations with China turned increasingly hostile for all three countries. Despite the desire of the Japanese, Australian and Indian governments to reposition foreign direct investment (FDI) and production capacities outside China, businesses, long accustomed to operating profitably in China, will expect incentives for relocation. It will be difficult, however, for governments, which have committed large resources to fighting Covid-19 to offer major financial incentives like deep tax concessions. An alternative, but more appealing option for businesses, might be the opportunity of simultaneously accessing India, Australia, Japan and a few more major markets as a result of the three countries agreeing to common preferential investment rules. The option would be particularly appetizing if such rules applied to investments in strategic sectors like electric vehicles, telecommunications, pharmaceuticals, and semiconductors. The RSCI could then emerge a powerful vehicle for restructuring investments and production within the APR post-Covid-19.