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Background

Why should you keep your eye on what’s happening to global supply chains?

* Supply chains are increasingly important to the product manufacturing & delivery setup

* Disruptions have a direct bearing on supply & demand

* Inefficiencies result in a cascading impact on global inflation

One of the primary reasons for global inflation rising has been a supply shock in the logistics markets as companies and economies scrambled to get back to business. In today’s world, this is easier said than done as regulations across individual jurisdictions and free movement was hampered by divergent waves of Covid hitting nations. Even the non-synchronized nature of gradual re-openings of economies played havoc for shippers and traders.

The sector itself has faced several challenges. A little over a year ago, the world was terrified of a 6-day blockage in the Suez Canal disrupting world trade. The current month long lockdown in Shanghai, the world's busiest container port, and China's primary cargo airport, has also hampered the industry’s recovery. As the slow normalization process continues, we infer, elevated costs of transportation and delivery times should fall. The resulting benefits to the global economy would mean – lower inflation pressures. Encouragingly, we are seeing signs that major parcel carrier networks are starting back up in key China market.

Two years into COVID, facing geopolitical and supply chain uncertainties, global supply chain has become more dependent on China, foreign direct investment into China has increased, and China has refocused its strategy on manufacturing. At the aggregated level, China is expanding its role from a "final assembler" to one with increasingly complete supply chain capabilities, rising especially in tech and industrial components.

Implications for India

The external sector is critical to the development of the Indian economy. The linkages to supply chains affect the Indian economy via inflation despite the linkage currently being relatively low. The China + 1 strategy that is currently being spoken about by global strategists is a direct response to the current issues plaguing the world due to its over reliance on China

For a developing economy like India, promotions like the PLI scheme and the export push is a medium to plug India further into the global supply chain. As this plug-in takes place, India will achieve the benefits of this and will also be subject to the vagaries brought on by shocks to the chain.

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