South Asia must now build resilient supply chains | Analysis – analysis
The outbreak of the coronavirus disease pandemic (Covid-19) has brought new opportunities for regional cooperation in South Asia. On March 15, Prime Minister Narendra Modi hosted a regional conference with the leaders of the South Asian Regional Cooperation Association (Saarc) and established a $ 10 million emergency fund to combat the pandemic. On March 26, a high-level official meeting was held to frame mechanisms to promote cooperation in health. The region is also witnessing bilateral cooperation, with Bangladesh supplying food and medical equipment to the Maldives, and India stepping up its medical assistance to the region.
Many commentators anticipate that there will be a decline in globalization and a relative strengthening of regional supply chains. Geography will assume an important role in supply chains, since the proximity of production centers will have a weight equal to that of conventional elements, such as facilities, labor, and the time and cost of transportation. India, in particular (and to a large extent the South Asia region) is expected to benefit from this for two reasons: one, several companies moving from China are expected to consider India as a potential destination, and two, India’s importance as will also increase a market for its neighboring countries. While the shifting focus on locating global supply chains provides an opportunity for the region to better integrate economically, there are challenges that must be addressed.
In the recent Brookings India report, India’s limited commercial connectivity to South AsiaWe have mapped trends in India’s low trade connectivity with the region, gaps to be addressed, and recommendations for increasing trade in the region. Despite enormous potential, intra-regional trade in South Asia is among the lowest in the world at 5% (World Bank). To date, India’s trade with the region has ranged from 1.7% to 3.8% of its world trade. China has steadily increased its exports to the region from $ 8 billion in 2005 to $ 52 billion in 2018. As a result, only Afghanistan, Nepal and Bhutan now have a higher trade share with India compared to China. However, India remains an important market for all its neighboring countries except Myanmar and Pakistan.
The pandemic created both supply and demand shocks in world trade. A recent report by The Economist’s Intelligence Unit shows that companies with localized industries and supply chains were better able to mitigate shocks.
Recently, Prime Minister Modi also emphasized self-sufficiency and emphasized strengthening India’s supply chains. South Asian economies, particularly small and medium-sized enterprises in the region, can benefit from strengthening regional supply chains. The region’s relatively young population and a rising middle class are well positioned to supply labor for labor-intensive production and generate demand for goods and services, respectively. To achieve better regional integration, there are several steps that South Asian countries can take.
First, supply chains can only be strengthened by reducing protectionism in the region to facilitate the flow of goods and services across borders. This includes reducing tariff and non-tariff barriers to trade. This can be done through the review of free trade agreements or unilaterally by India. India’s health exports in particular, such as medical devices, surgical equipment, and pharmaceuticals, are beneficial to the neighborhood.
Second, cross-border logistics and infrastructure must be improved to make supply chains inexpensive. The region also lacks seamless end-to-end connectivity, has high logistics costs, and inadequate storage infrastructure. In recent years, it has focused on improving infrastructure in the region’s commercial ports: approximately six land customs stations (LCS) have been upgraded to integrated checkpoints with 13 more in the pipeline, connectivity infrastructure with Nepal and Bangladesh (railways, roads, pipelines and inland waterways) has increased in number, and air connectivity with Sri Lanka has grown with the operationalization of the Jaffna airport. Despite this, South Asian countries need to focus on lowering logistical barriers.
Third, the pandemic has demonstrated the importance of digitization. As sanitation measures in cross-border movements increase, there is a need to increase investment in digital infrastructure to reduce human interactions. The digitization of documentation and the installation of radio frequency identification in land ports are some of the measures that can be explored.
India’s dominant presence in South Asia requires it to take steps to strengthen cooperation, build resilient supply chains, and support economic recovery in its neighboring countries. The pandemic has provided an opportunity for India to reverse its slow trade with the region. Since regional markets are easier to connect to than global markets, India is seen as an attractive market by its neighbors; Bangladesh, for example, has shown interest in connecting with the northeast. By optimizing its strategic location in South Asia and its availability of labor and a growing middle class to generate supply and demand for goods and services, India has immense potential to attract investment and become an export-led economy.
Riya Sinha is a Research Associate and Niara Sareen is a Research Intern at the Brookings Institution India Center. This is part of the Sambandh Initiative in Brookings India
The opinions expressed are personal.