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Lecture 1 (Evaluation Policy) 24-07-24

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Lecture 1 (Evaluation Policy) 24-07-24

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muhammeds4hil
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GS4002D Supply Chain Finance

Pre-requisites: Nil
Total hours: 39
Course Description
• Supply Chain Finance (SCF) implies more recently developed financing and risk
mitigation techniques.

• It is far more likely to be used in open account trade where the buyer and seller
have done business together before.

• Supply Chain Finance (SCF) encompasses a range of solutions within trade finance that
are adopted by various
• financial institutions,
• prominent corporate buyers, and
• trading partners across the globe

• The fundamental feature of Supply Chain Finance (SCF) is that the different methods
available are determined by the characteristics of the physical supply chain.
Course Description
• This course offers an overview of the
• increasing significance of SCF,
• exploring its main components,
• the variety of available solutions, and
• a comprehensive look at the factors contributing to successful implementation.
Course Outcomes

CO1: Understand the supply chain finance ecosystem

CO2: Illustrate how to assess the funding gaps as a result of trade


cycle analysis

CO3: Explain the supply chain finance techniques in a global setting

CO4: Become familiar with the FinTech in Supply Chain Finance


Module 1: (13 Hours)
Supply Chain Finance
• Introduction to Supply Chain -Collaborative Supply Chain,
• Financing Operations and Inventory,
• Supply Chain Efficiency and Firm Performance.
Trade Cycle Analysis
• Estimation of Working Capital in Manufacturing Vs Trading Firm.
• Review of Bank Finance,
• Trade Finance, and
• Instruments of Finance
Module 2: (13 Hours)
Supply Chain Finance Options
• Institutional Finance Vs Instruments,
• Trade Finance,

Supply Chain Finance in a Global Setting


• Financing Foreign Trade,
• Understand the Forex Risk
Module 3: (13 Hours)

Cost and Benefits analysis


• CBA of Supply Chain Finance arrangements and options,
• Value Creation through SCF arrangements,
• Legal aspects of SCF contracts.
Fintech
• Fintech and its relevance to Supply Chain,
• Future of Supply Chain Finance in the Digital era,
• FinTech Products and Evaluation – Case analysis
References
1. S. Templar, E. Hofmann, and C. Findlay. Financing the End-to-End Supply
Chain. 2nd Edn. KoganPage Publishers, 2020.

2. R. J. Trent. Supply Chain Financial Management: Best Practices, Tools, and


Applications for the improved Performance. 1st Edn. Springer, 2015.

3. M. Miller, Global Supply Chain Ecosystems: Strategies for Competitive


Advantage in a complex, connected World. 1st Edn. Kogan Page Publishers,
2015.

4. W. Tate, L. Bals, and L. Ellram. Supply Chain Finance: Risk Management,


Resilience and Supplier Management. 1st Edn. Kogan Page Publishers, 2018.

5. J. B. Rice Jr., A. Serrano, S.D. Lekkakos, Practical Finance for Operations


and Supply Chain Management, 1st Edn. The MIT Press, 2020.
China Plus one Strategy
• The Economic Survey 2023-24 indicates that India might be softening its stance
on economic relations with China, recognizing the necessity of integrating into
the global supply chain.
• It highlights that allowing Chinese foreign direct investment (FDI) could boost
India's exports to Western nations.
• Despite India's rapid growth, its economy is still much smaller than China's, and it
is unrealistic to assume India can entirely replace China in manufacturing.
• The trade data for FY24 reveals a significant trade deficit with China, with India's
exports to China at $16.6 billion and imports at $101.7 billion, leading to an
$85 billion deficit. This deficit has been growing over the years.
• Although India has increased exports to the US, especially in electronics, it
remains heavily reliant on Chinese imports, particularly in electronics and
telecom products.
• Chief Economic Advisor Anantha Nageswaran pointed out that most of India's
trade deficit with China is due to the import of industrial goods, which is likely
to increase as the West diverts trade away from China.
• To improve its manufacturing capacity, India will need to increase imports of
capital goods, currently predominantly sourced from China.
• The Survey suggests two choices for India to benefit from the "China plus one"
strategy:
• integrating into China’s supply chain or
• promoting FDI from China,
• with the latter being more promising for boosting exports to the US.
• However, Ajay Srivastava, Founder of the Global Trade Research Initiative,
cautions that relying on Chinese investment could undermine India's long-term
economic security and strategic autonomy, exposing it to supply chain
vulnerabilities and geopolitical risks.
Capex baton passed to private sector
• The Economic Survey 2023-24 emphasizes the need for private capital
expenditure (capex) to take over from government spending, highlighting the gap
between private and public capex and the necessary support infrastructure to
stimulate private investment.
• It notes that while fixed asset growth in the private sector lagged behind public
sector companies, there has been cumulative growth in Gross Fixed Capital
Formation (GFCF), albeit with an unhealthy mix favoring dwellings over
machinery and intellectual property assets.
• Despite the reduction in corporate tax rates to 25%, there hasn't been a
significant increase in private capex.
• However, corporate balance sheets have strengthened, and signs of private capex
recovery have emerged in the last two years.
• The leverage ratio for Indian companies has improved, indicating a healthier
financial position.
Foreign Exchange Reserves
• Foreign Exchange Reserves:
• India’s foreign exchange reserves increased by $68 billion in 2023-24, the highest rise among
major reserve-holding countries.
• Reserves stood at $653.7 billion on June 21, 2024, sufficient to cover over 10 months of
imports for FY25 and 98% of total external debt as of March 2024.
• Rupee Stability:
• The rupee was one of the least volatile currencies among emerging market peers in FY24.
• Despite depreciation pressure from a stronger US dollar, the rupee showed the lowest volatility
in FY24 compared to previous years, with a coefficient of variation (CV) of 0.58.
Future Outlook:
• Robust foreign inflows and comfortable trade deficits are expected to maintain the
rupee within a stable range.
• The stable foreign exchange reserves provide liquidity and act as a cushion against
global economic fluctuations.
Global Ranking:
• India ranks fourth in foreign exchange reserves globally, after China, Japan, and
Switzerland.
Gender Equality in Financial Inclusion:
Gender Equality in Financial Inclusion:
78% of both males and females above 15 had a bank account in 2021, a
significant increase from 44% for males and 26% for females in 2011.
Overall Financial Inclusion Progress:
• Adults with accounts in formal financial institutions increased from 35% in
2011 to 77% in 2021.
• The percentage of adults borrowing from formal sources rose from 8% in 2011
to 12% in 2021.
• The access gap between rich and poor regarding financial services has
declined.
Importance of Financial Inclusion:
• Seen as a means to sustainable economic growth, reducing inequality, and
eliminating poverty.
• Government prioritized reaching the last mile for financial services.
Digital Inclusion as Next Goal:
Digital Inclusion as Next Goal:
• Shift in focus from ‘every household’ to ‘every adult’ with emphasis on account
usage.
• Enhancing direct benefit transfers (DBT) and promoting digital payments
using RuPay cards and UPI.
• Introduction of UPI123Pay for feature phones and UPI Lite for low-value
transactions up to ₹200 through the BHIM app.
Timeframe for Achieving Goals:
Without digital initiatives, achieving 80% bank account ownership could have
taken 47 years relying solely on traditional growth processes.
iPhone Production in India
iPhone Production:
• India assembled iPhones worth $14 billion in FY24, representing 14% of Apple's
global production.
• Production takes place in Karnataka and Tamil Nadu through Foxconn’s
facilities.
Electronics Export Growth:
• Global export share increased from 0.63% in 2018 to 0.88% in 2022.
• Improved global electronics export ranking from 28th to 24th.
• Electronic goods' share of total merchandise exports rose from 2.7% in FY19 to
6.7% in FY24.
Electronics Manufacturing Industry:
• Secured 3.7% of the global market share by FY22. Contributed 4% to India’s GDP
in FY22.
• Domestic production reached ₹8.22 lakh crore in FY23.
• Exports escalated to ₹1.9 lakh crore in FY23.
Smartphone Manufacturing:
• Key industry in the ‘China plus one’ strategy.
• Production Linked Incentive (PLI) scheme crucial for attracting investments.
• Notable increase in electronic exports, especially to the US, shifting from a $0.6
billion trade deficit in FY17 to an $8.7 billion trade surplus in FY24.
Value Addition and Employment:
• Domestic value addition (DVA) in mobile manufacturing rose from 8.7% (FY’17-
FY’19) to 22% (FY’20-FY’22).
• Integration into global value chains (GVC) enhances overall value addition.
• Direct workforce in mobile phone production tripled from FY17 to FY22.
• Significant positive impact on female blue-collar workers.
• Wages and salaries increased by 317% between Phase 1 and Phase 2
India should plug into Chinese supply chain to boost
manufacuring
Chinese Overproduction Impact:
• China's overproduction due to demand-supply mismatch is pushing companies
to seek overseas markets.
• This leads to global price collapse and drives other national producers out of
business.
• Economic coercion and monopolistic control over resources, such as critical
minerals, are exerted by China.
India's Steel Sector:
• Global steel price collapse pressures producers in developing economies like
India.
• India's steel sector was a net importer in FY24 due to price differences between
international and domestic markets.
• Imports grew by 38.2% and exports by 11.5% in the last fiscal year.
• India’s domestic steel consumption and demand remained strong, with
consumption growing by nearly 14% and production by 13%.
Electronics Sector and PLI Scheme:
• PLI scheme for specialty steel attracted ₹15,519 crore in investment till May 2024.
• The scheme is expected to attract a total investment of ₹29,531 crore.
Risk of Economic Coercion:
• China’s dominance in various product categories poses a risk of economic
coercion.
• This is particularly evident in rare earth and critical minerals exports.
• China's monopolistic practices restrict the emergence of new manufacturing
powers.
Emerging Markets and Trade Practices:
• EMDEs are using import restrictions against China, but Chinese goods' low
prices often bypass these tariffs.
• Chinese retaliation complicates the manufacturing landscape for EMDEs.
Boosting Indian Manufacturing:
• The Economic Survey suggests integrating into China's supply chain to boost
Indian manufacturing.
• This can be done by relying on imports or attracting Chinese investments.
• Brazil and Turkey have increased tariffs on select Chinese goods while attracting
Chinese FDI in select sectors.
• India's large bilateral trade deficit with China makes it vulnerable to potential
supply disruptions.
• Replacing well-chosen imports with investments from China could create
domestic know-how in the long term.
Evaluation Pattern

• Mid Term – 25 Marks


• Quiz/ Case studies/Tutorials – 25
• End Exam - 50

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