Covid-19 may permanently alter the contours of globalisation and Indian policymakers need to be aware of both the opportunities and the threats. Before Covid-19, the anti-globalisation sentiment was driven largely by leaders who had promised to create more jobs for their countrymen. Now it is being spurred by supply side concerns, especially in a few critical areas.
Last year, supply chain disruptions were caused by lockdowns in different nations. China’s lockdown of Wuhan created the initial disruption. But as other countries too closed their borders to reduce the pandemic, freight movement globally was thrown out of gear. The need to stockpile healthcare essentials such as PPEs and sanitisers also caused countries with production facilities to clamp down
on exports to other countries. The natural by-product of this was that all countries looked for local manufacturing options for these.
Many experts thought this would be temporary. The unprecedented global cooperation to search for vaccines and drugs seemed to show that globalisation would increase rather than decrease. Vaccine research and development saw scientists, research laboratories, pharmaceutical firms, clinical trial organisations and contract vaccine manufacturers across the world work closely together.
But that cooperation flattered to deceive. The richest nations quickly started locking up vaccine supplies for their own populations. The US particularly went on to stockpile vaccines far in excess of its needs, denying vaccines even to its closest allies. In Europe too, spats broke out as AstraZeneca told the EU that it could supply only half of what it had signed an agreement for because of production problems. Within the EU, member states are squabbling over the supplies each will get quickly.
The US and several EU nations are giving hundreds of millions of dollars to help companies build new vaccine capacities and secure supplies for themselves. The US has also blocked exports of key ingredients like filters and bioreactor bags that are necessary for making vaccines using the Defence Production Act—leading the world’s biggest vaccine manufacturer, Serum Institute of India, to warn that it could affect vaccine production in our country.
Vaccines are not the only area. The global chip shortage has hit manufacturing companies in multiple industries across the globe. It started with automobiles but now the shortage is expected to affect all manner of consumer durables and electronic items over the next couple of years.
This has led the US, South Korea, Taiwan and China to commit spending billions to build new chip manufacturing capacities. As chips are pretty well used in almost everything, the countries that manage to secure supplies will control them all. While Taiwan and South Korea are building capacities for the global market, the US and China are primarily looking at safeguarding their own manufacturing interests.
The US wants to rebuild manufacturing within its own shores using robotics and automation to make up for a higher cost labour. For China, the primary need is to ensure that it does not lose its dominant position as a factory to the world and to also ensure that it remains at the cutting edge of all important technologies.
Some countries, like those in Europe, are too small to make them suitable bases for mass manufacturing in many industries. Others, like many African and Latin American nations, have their own issues, ranging from costs to infrastructure.What does that mean for India?
In pharmaceuticals, and especially in vaccines, India has been the low-cost manufacturing powerhouse, which is only going to increase. Its willingness to supply vaccines and medicines to other countries is earning it brownie points as a global supplier. But it needs to ensure that the entire chain is secured—from active pharma ingredients that it depended on China for to the filters, etc., that it imports from the US.
India’s Achilles heel lies in its lack of chip manufacturing facilities, which makes it crucially dependent on global supplies for its manufacturing industry. If the Indian government is serious about manufacturing, it will need to address this issue. The domestic market has enough potential for setting up big factories for multiple products but unless it secures its chip supplies, it will remain vulnerable.
While the Ministry of Electronics and Information Technology (MeitY) has been trying to attract chip firms, it has so far failed to evince any serious interest because of three factors. One, the investment required is phenomenal. Two, the technology is very high-end and starting from scratch is a serious handicap. Three, chip manufacturing requires immense quantities of clean water and reliable, low cost electricity supply. Many global companies think that chip manufacturing in India will never be as cost effective as in Taiwan or Korea.
One option that MeitY is also exploring is to buy or take shares in chip fabs abroad or at least place long-term orders in them to secure supplies. If it is a friendly country such as South Korea or a non-threatening neighbour like Taiwan, it would work.
Beyond that, taking the long view, Indian policymakers should look at the roots of the issue. It needs to look at why land, cheap power and clean water still remain a hurdle to manufacturing industries in our country.
Prosenjit Datta
Senior business journalist
(prosaicview@gmail.com)