India should enhance its position in global supply chain, says US

Washington: The United States has urged India to create an environment that will foster its position in the global supply chain and said that the country continues to face challenges on the market access front despite improvement in the ease of doing business.

Observing that the coronavirus pandemic may give rise to self-sufficiency and self-reliance sentiments among struggling economies, Joseph Semsar, Deputy Under Secretary of Commerce for International Trade, said that India with its “Atmanirbhar Bharat” Initiative has put forward a programme that puts a question mark on the notion of self-reliance.

“Our thought is that isolationist policies can also cause a decrease in exchange between businesses and economies, less technology and best practice sharing, fewer joint research and development projects and stifled innovation,” Semsar said at the third India-US Leadership Summit organised virtually by the US India Strategic and Partnership Forum (USISPF).

“So we urge the government of India to focus on creating an environment, fostering an environment that will enhance India's position in the global supply chain,” he said in response to a question from Anish Shah, deputy managing director and group CFO, the Mahindra group, who is also a USISPF board member.

“India has improved its ease of doing business index, but challenges remain on the market access front,” he said.

“There are concerning issues regarding data localisation, intellectual property rights, high tariffs, duplicative safety and security testing, price controls, and FTI restrictions in sectors like insurance,” he added.

These are the challenges that India and the United States have to work together to resolve, Semsar said.

Noting that the Trump administration has long recognised the need to diversify supply chains for both economic and national security of the US, he said that business leaders are finally realising that they cannot rely on unsuitable sources for their production.

The coronavirus pandemic has shown how easily supply chains can weaken and in some cases, even break down entirely.

“On this front, India has the potential to become a global supply chain leader in the Indo-Pacific region and beyond,” Semsar said.

Stating that supply chains are not easily mobile and market research and investments take a very long time, he recommended that India take a long term approach to attracting business.

Semsar urged India to avoid the bait and switch tactic of attracting companies by implementing good policies only to later change course by adopting regulations that are inhibiting and costly to business.

Being overly bureaucratic with firms that operate globally and know the intricacies of running a business in different countries will immediately reduce a country's chance of attracting and retaining investment.

Companies are extremely sensitive to regulatory oversight and bureaucratic controls, he said, adding that they compare notes between countries and they are able to add up the cost down to the penny.

The time involved in dealing with burdensome government controls is an important cost that is very easily tracked, he added.

When it comes to supply chains, the industry recognises three things: diversification, resilience and reliability. Supply chain needs to be diversified, infrastructure needs to be resilient and reliable and policies in the business environment also need to be reliable, he said.

Also, foreign investors look for the ability to have majority ownership and control and their business ventures to help strategically manage and deploy resources. US companies are extremely alert to market opportunities, no matter where they exist in the world.

“However, in our minds, India to a certain degree can make strides and levelling the playing field by abandoning discriminatory policies, enhancing transparency and predictability and its policies and lowering the cost of doing business," he said.

"Despite having an improved overall ease of doing business -- that ranking is down to 63, out of 190 economies, which is incredible progress -- India still ranks at 136 for starting a business, 154 for registering a property and 163 for enforcing contracts."

"This ultimately hurts FDI in India, but has even more harmful impact on the creation of indigenous Indian firms particularly those that might be competitive, internationally,” he said.