 "Let Chinese companies invest in India to make most of China Plus One shift: Economic Survey 2023-24")
The Economic Survey 2023-24, tabled by Finance Minister Nirmala Sitharaman on Monday, categorically pointed out two choices for India to benefit from the ‘China plus one’ strategy that is being followed by several major multinational companies over the last five years to reduce their reliance on China.
1 - India can integrate into China’s supply chain
2 - Promote FDI from China
The survey went on to explain that among the two choices, “focusing on FDI from China seems more promising for boosting India’s exports to the US, similar to how East Asian economies did in the past.”
It further said that choosing FDI as a strategy to benefit from the China plus one approach appears more advantageous than relying on trade.
But why?
“This is because China is India’s top import partner, and the trade deficit with China has been growing," the survey said.
“As the US and Europe shift their immediate sourcing away from China, it is more effective to have Chinese companies invest in India and then export the products to these markets rather than importing from China, adding minimal value, and then re-exporting them,” the survey report explained.
India’s economy survey 2023-24 also highlighted a recent research note from the Rhodium Group mentioning that “China’s dominance over so many product categories creates, first and foremost, a risk of economic coercion, where the government restrains access to crucial inputs for political leverage.”
The same brief also stated: “Brazil and Turkey have raised barriers to imports of Chinese EVs, but enacted measures to attract Chinese FDI in the sector.”
Impact Shorts
More ShortsEuropean nations, too, have decided to follow a similar approach. Hence, it is imperative that India finds the right balance between importing goods from China and importing capital (FDI) from China.
‘Appeal of India lies in its domestic consumer market’
“The appeal of India lies in its large domestic consumer market, which makes it attractive for companies to set up operations there. In the electronics sector, there is a focus on smartphone manufacturing and assembly,” the survey report highlighted.
What’s attracting companies to India?
The Economic Survey said: “The Government’s PLI scheme, including tax breaks and subsidies, plays a significant role in attracting companies. The rise in India’s domestic smartphone demand is also a key factor in companies’ decisions to invest there."
Sharing the example on the same, the survey report said that during FY24, Apple assembled USD 14 billion worth of iPhones in India, constituting 14 per cent of its global iPhone production. Foxconn has started production of Apple mobile phones in Karnataka and Tamil Nadu.
India sees substantial increase in electronic exports
The survey further said that though India may not be an immediate beneficiary of the trade diversion from China, it has witnessed a substantial increase in the electronic exports over time.
India’s electronic exports to the US have transitioned from a trade deficit of USD 0.6 billion in FY17 to a trade surplus of USD 8.7 billion in FY24. Within the electronics sector, the category that has experienced the most growth is mobile phones, with exports to the US rising from USD 2.2 billion in FY23 to USD 5.7 billion in FY24.
‘World cannot completely look past China’
The Economic Survey further said China plus one will not result in a total movement of trading relations away from China.
It further said, even if nations like Mexico, Vietnam, Taiwan and Korea, which were direct beneficiaries of the US’ trade diversion from China, increase their share of exports to the US, they also displayed a concomitant rise in Chinese FDI.
“Therefore, the world cannot completely look past China, even as it pursues China plus one,” the survey report said.
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