The Impact of Political Stability and Policy Continuation on Trade and Supply Chains

2024 is an election year, not just for India but for around 64 countries across the globe! It means that roughly 49% of the global population will go to polls this year and two of the largest democracies of the world, i.e. India and The USA, too will be a part of it –

India and The USA are heading for elections and there is enough excitement and deliberation to understand the impact on trade and international relations whichever way the results lean.

In India, there are multiple things that are at fore. A large number of first-time voters will exercise their franchise this year. The election of 2024 will be a reflection of the youth expectations and the idea of a developed India. Apart from identity, there is unemployment, expectations of a developed India and the growth of the economy that are the talking points.

The Indian stock market historically shows positive sentiments, and it settles once the elections are over, however if the elections are not as per expectations or if there is a hung parliament, there can be significant volatility in the markets. But what is the connection between elections, political stability and supply chains? Let's take a deep dive and understand this better.

The connection between supply chains and international policies

The growth and efficiency of global trade and supply chains heavily depend on the stability and consistency of international policies. Political stability and the continuation of policies create a predictable environment that is crucial for businesses to make long-term investments and strategic decisions.

1. A Catalyst for Trade Growth

Political stability is often linked to improved economic performance across countries. Stability reduces risks associated with investments and lowers transaction costs, encouraging more robust trade relations. When businesses are confident that current trade and economic policies will continue, they are more likely to invest in long-term projects and cross-border partnerships. The mistrust around China’s leadership and policies has seen an impact on their trade relations across the globe with business being cautious and thinking of decoupling from China.

2. The Role of Policy Continuation in Supply Chain Efficiency

Continued and consistent policies are essential for the efficient management of global supply chains. Supply chains thrive on predictability, which allows companies to plan for production, logistics, and distribution without the constant threat of sudden policy shifts that could disrupt operations. For example, consistent trade policies and regulations help in maintaining the flow of goods across borders without unexpected delays or costs. The onus of building on the existing policies and ensuring governance does not impact trade is on the incoming government.

3. Challenges and Strategies Amidst Political Instability

Political instability can pose significant challenges to global supply chains, leading to disruptions that ripple through markets. Companies often have to develop contingency plans and diversify their supply chains to mitigate risks in politically volatile regions. Targeting business houses or multinational companies for political gains can have long term impact on the trade and supply chains resulting in low investments by businesses in a specific state.
It becomes crucial for businesses to establish strong local relationships and maintain a flexible sourcing strategy to manage these risks. Companies need to be agile and ready to adapt to rapid changes in the political landscape to protect their supply chain operations.

Conclusion

The interplay between political stability, policy continuation, and their effects on trade and supply chains underscores the need for a strategic approach to international business. Companies must stay informed about political developments and adjust their strategies accordingly to navigate the complexities of global trade and maintain competitive advantage. The coming elections will also be a test for trade and supply chains to understand the macro level impacts of elections and quickly adapt to ensure continued business and seamless trade in this ever changing global situation.