Prudent for global biz to diversify supply chains: FM

Speaking at the Peterson Institute for International Economics in Washington DC, Sitharaman said that however much one would think that supply chains would move out of China, that would not be the case.

A combination of China and others could be a realistic solution, the minister said. “Even as China is opening up again after the zero-tolerance policy and everything, I would still think there would be a lot of investment interest and manufacturing interest going back to China or restoring themselves in China. So, it would be unrealistic to think everything will get out of China. But yet, the shock that had happened in terms of supply chain justifies more than one location and countries like India would be the best in terms of the skill sets that Indians, particularly the youth, have,” Sitharaman said.

The minister said at the event that people in the age group of 15-29 years constitute nearly 27% of India’s population. So, there is every reason for global businesses to come and invest and also tap a captive domestic market, the minister said. Sitharaman also said that some other South East Asian countries may also be pitching for investments.

“It just sends a very strong message that the world did not notice or did not choose earlier. That is, spreading your resource basket of the supply chain is a far more prudent way of continuing in business, however much the cost complications make it difficult in other places, and the cost-benefit makes it possible to concentrate in one jurisdiction,” Sitharaman said.

The finance minister is currently in the US to attend the spring meetings of the World Bank and the IMF and to attend G20 meetings.

Sitharaman said there are pain points in the way the green agenda is being pursued globally. She highlighted that the $100 billion committed by developed nations for climate action in developing countries had not materialized yet and that India fulfilled its COP21 commitments given in Paris largely out of its own funds. The minister also flagged her worries about the carbon border adjustment mechanism, a tax that non-EU producers will have to pay for the emissions they make for accessing the EU market.

The solutions being explored “to make the world greener, I am afraid, are not working in favour of all,” Sitharaman said. The minister also expressed her worry about the possibility of world trade eventually shutting doors to non-green steel, which will favour producers in certain markets. “I wish that money (the proceeds of carbon border tax) is available for all of us producing steel” to convert non-green steel into green steel, the minister said.

In response to a question on whether the perception abroad about Indian opposition MPs losing their status or Muslim minorities getting subjected to violence is affecting capital flows into India, the minister said that India has the second-largest Muslim population in the world. “And the population is only growing in numbers. If it were reality, their lives were difficult or made difficult with the support of the state, which is what is implied in most of these write-ups, I would ask– would the Muslim population in India be growing than what was in 1947 as opposed to Pakistan?” the minister asked.

The minister also said that Indians showed resilience and enterprise in taking on the challenge posed by the pandemic despite tragedies at home. Community service and the government’s humanitarian assistance and schemes for reviving the economy too helped. With vaccination completed and booster shots are given, India can take on any contingency, the minister said. Sitharaman also said that India has taken the route of free trade agreements. “Between 2019 and now, we have at least three major agreements signed. We shall proceed on that route also with the United Kingdom, the EU and Canada. All three are happening as we speak, and negotiations are going on. We are very clearly moving forward on bilateral preferential trade agreements,” Sitharaman said.