In 2022, lockdowns in China due to the Covid pandemic severely disrupted the global flow of crucial pharmaceutical products, prompting a reassessment of the structure of international supply networks. The resulting events have led to considerations of geopolitical competitiveness and macroeconomic pressures.
According to the Hinrich Foundation, India could emerge as a key destination under the US's new "friend-shoring" policy for the pharmaceutical industry.
The term "friend-shoring" refers to the practice of relocating supply networks to countries with minimal political unrest that might disrupt them.
It is worth noting that the Hinrich Foundation is an organisation that advances sustainable and mutually beneficial global trade through research and educational programmes aimed at fostering understanding and leadership in global trade.
As the global economy rebounds from the Covid-19 pandemic, national leaders appear to be abandoning the idea of free trade, especially when it leads to the concentration of essential supply chains in geopolitically risky regions. This has given rise to the concept of "friend-shoring," which involves promoting the growth of supply chains in friendly countries.
A paper by Akhil Ramesh and Rob York for the Hinrich Foundation notes that US authorities are shifting away from uncontrolled foreign investment and the "onshoring" of industries.
The pharmaceutical sector, which gained in importance during the pandemic, is a promising area for friend-shoring, given India's recent economic liberalisation, its growing partnership with the US, and its reputation as the "pharmacy of the world."
However, India's domestic industry faces challenges such as inadequate regulatory oversight, dependence on China for component supplies, and environmental problems associated with manufacturing.
China has provided significant economic support to the pharmaceutical industry in recent years, while the US has not implemented industrial policy planning to the same extent. However, the US is now shifting towards such policies and may use its position as the largest buyer of medications in the world to drive supply chain diversification.
The US could also convince countries like Japan and France to join the "friend-shoring" movement. The Hinrich Foundation paper suggests that the US could use the Mineral Security Partnership and the CHIP4Alliance as models.
With inputs from ANI
