Trade

Leveraging global supply chains to fight Covid-19

  • Blog Post Date 17 June, 2021
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Anwesha Basu

Indira Gandhi Institute of Development Research

anwesha@igidr.ac.in

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C. Veeramani

Indira Gandhi Institute of Development Research

veeramani@igidr.ac.in

When the second wave of Covid-19 hit India, the health catastrophe was compounded by shortages of oxygen, medical equipment, and life-saving drugs. In this post, C Veeramani and Anwesha Basu contend that contrary to the Indian government’s Atmanirbhar or self-reliance stance, relying on global supply chains is a better strategy to achieve resilience against unexpected health shocks.

When India was hit by the first wave of the Covid-19 pandemic last year, the government announced its vision of “Atmanirbhar Bharat” as a panacea to tackle the impending health crisis and also as a new development mantra. The underlying argument was that domestic supply chains are more reliable and resilient to tide over health challenges during a pandemic. Further, it is argued that minimum dependence on imports is in the interest of promoting industrial development in the country. These viewpoints go against rational economic thinking and the widely accepted principle that diversification of supply chains is an essential component of a good risk-management strategy. Indeed, the recent health catastrophe, in the form of the second wave of Covid-19 in India, exposes the flaws of the self-reliance rhetoric. In this post, we discuss why relying on global, as opposed to domestic supply chains, is a better strategy to achieve resilience against unexpected health shocks.

Global versus domestic supply chains during a pandemic

Every country is likely to be affected by a pandemic, but outbreaks tend to peak at different times in different countries. Hence, when India is at the peak of the epidemic curve, other countries that have already flattened the curve can serve as a source of life-saving drugs, medical equipment, and oxygen. In general, global supply chains are more robust as compared to domestic supply chains, except in a highly unlikely scenario in which a disease affects all countries simultaneously and with the same intensity (Goldberg 2020). Since national borders are more porous than international borders, a pandemic and its subsequent waves spread within a country more easily and rapidly relative to those across countries. Therefore, lockdowns and restrictions in the movement of goods would be more synchronised within as compared to between countries.

For example, the oxygen crisis during the second wave of Covid-19 in India was not due to a lack of domestic production, but was primarily caused by domestic supply chain bottlenecks, and the unavailability of oxygen cylinders and tankers. While most oxygen producers are based in the eastern parts of India, the soaring demand came from cities in the western and northern regions of the country. As several states went into lockdown, one after another, transportation and logistical fiascos followed. As these domestic supply chains failed us when we needed them the most, imports of oxygen cylinders and concentrators and airlifting of oxygen plants from other countries came to the rescue.

Global interdependence in supply chains during Covid-19

As per our calculations, based on official customs data from China, as soon as the pandemic-induced lockdown was lifted in China, the country’s exports of Covid-19 products skyrocketed, alleviating shortages in other countries. China’s world exports of Covid-19 products increased by about 200% from US$ 43 billion during the pre-lockdown period (April-December 2019) to over US$ 125 billion during the post-lockdown period (April-December 2020). The growth rates were highest for the most critical products such as protective garments (491%), test kits (461%), oxygen therapy equipment, and pulse oximeters (135%).

Empirical evidence confirms that there exists a high degree of global interdependence of supply chains in medical products related to Covid-19 (Organization for Economic Co-operation and Development (OECD), 2020) – a country may be a top producer of one Covid-19 product, but an importer of another. Similarly, vaccine production, distribution, and administration are conditional on the access to a range of inputs – active ingredients, vials, syringes, cold boxes, dry ice, freezers, etc., available across various countries (OECD, 2021). As stated in a World Trade Organization (WTO) report, “A typical vaccine manufacturing plant will use in the region of 9,000 different materials sourced from some 300 suppliers across approximately 30 different countries” (WTO, 2020).

India’s imports and exports of Covid-19 products

Coming back to the Indian case, compared to the pre-pandemic period (April 2019-February 2020), our imports of Covid-19 products increased significantly during the pandemic period (April 2020-February 2021), even as the import of non-Covid-19 merchandise products registered a decline of 22.6% (see Table 1), India’s imports of essential and life-saving products such as infrared thermometers (670%), protective garments (142%), ventilators (117%), flowmeter and thorpe tube for oxygen (72%), gas cylinders for oxygen (70%), and test kits (66%), recorded the fastest growth. Though the exact values are not known yet, news reports suggest that as the second wave swept through the country, India’s imports of Covid-19 products shot up further since April 2021. As per our calculations, based on data from the Government of India’s Ministry of Commerce and Industry, India also increased its exports of Covid-19 products during the pandemic period, with a growth rate of 15.7% compared to the same period last year. The products that demonstrated the fastest export growth includes protective garments for surgical/medical use (883%), alcohol solution (307%), swab and viral transport medium sets (117%), hydrogen peroxide (89%), medical oxygen (74%), test kits (51%), and ventilators (43%). Before the peak of the second wave, India also supplied millions of vaccine doses to other countries that needed them the most – an act that had put the country on a morally secure position when it later received medical aid from other countries. However, even as India exported its vaccines to other countries, the excessive reliance on ‘made-in-India’ vaccines to inoculate its population led to an avoidable delay in giving regulatory approval to foreign vaccines.

Table 1. India’s imports of medical products related to Covid-19

Product category

April 2019-February 2020

April 2020-February 2021

Growth (%)

Covid-19 test kits and instruments

1,060.5

1,291.7

21.8

Disinfectants and sterilisation products

836.1

778.2

-6.9

Other medical consumables

987.2

1,041.1

5.5

Other medical devices and equipment

1,007.7

1,089

8.1

Other medical related goods

363.4

332.3

-8.6

Oxygen therapy equipment and pulse oximeters

526.4

598.2

13.6

Protective garments and similar products

218.3

528.2

142

All Covid-19 products

5,061.5

5,682

12.3

Source: Authors’ estimation using data from Ministry of Commerce and Industry, Government of India.

Note: All figures are in US dollars (in millions).

The urgent need of the hour is to strengthen India’s participation in global supply chains of Covid-19 products, including vaccines. This can be done by abolishing import tariffs and by streamlining trade-related processes at and within the border. India has one of the highest import tariffs in the world on Covid-19 products, and for various inputs needed for vaccine production, distribution, and administration. As seen in Table 2, for all product groups, the average Indian tariff rates are significantly higher than that of China, US, the group of low- and middle-income countries, and the world as a whole. Perversely, the ‘vaccine pharmacy’ of the world has a 10% customs duty on imported vaccines when the world average is less than 1%.

Table 2. Average tariff rates (%) for Covid-19 goods in India and other countries

India

China

US

Low- and middle- income countries

World

Covid-19 test kits and instruments

6.9

2.9

1.3

3

2.8

Disinfectants and sterilisation products

55.8

11.5

2

17.5

12.8

Other medical consumables

10.4

6.9

1.2

9.7

7.3

Oxygen

7.5

5.0

3.7

6.7

6

Other medical devices and equipment

8

5.3

0

5.3

4.4

Other medical related goods

9.8

4.9

1.3

7.4

6.1

Oxygen therapy equipment and pulse oximeters

5.6

2.5

0

3.6

3.1

Protective garments and similar products

13.3

7

4.4

14.1

11

Wheelchairs and mobile clinics vehicles

10.0

6.8

0

3.2

2.9

All Covid-19 goods

15.2

6.3

1.8

9.3

7.3

Inputs for vaccine production, distribution, and administration*

9.3

6.6

1.3

7.5

6.2

Vaccines for human use (HS 300220)**

10

3

0

1.1

0.86

Source: Simple average most-favoured-nation (MFN) tariff rates are from United Nations Conference on Trade and Development (UNCTAD)’s Trade Analysis Information System (TRAINS).

Notes: (i) *The list of vaccine inputs as per HS six-digit level classification is taken from OECD (2021). (ii) **HS300220 includes all possible vaccines for human use.

Concluding remarks

In April 2021, at the peak of the second wave of the Covid-19 pandemic, the government finally decided to waive off the basic customs duty on the import of oxygen, Covid-19 vaccines, and oxygen-related equipment. This is a move in the right direction, though more needs to be done by extending the tariff waiver for a range of other Covid-19 products and vaccine inputs. The cynicism of the government towards abandoning its misplaced protectionist policy, even during dire times, is puzzling – the announced waiver of tariffs is only for a period of three months. When the citizens of India are gasping for breath, it does not really matter whether or not the oxygen supplies or the ventilator that are provided to them carries a “Made in India” logo.

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