Join China’s supply chain(China)

Beijing: Amid tense relations with China,  (China) the pre-budget Economic Review 2023-24 presented in Parliament on Monday advocates increasing foreign direct investment (FDI) from the neighboring country (China) to promote local manufacturing and tap the export market. The Economic Review says that since the US and Europe are shifting their immediate supply from China, it is more effective for Chinese companies to invest in India and then export products to these markets instead of importing from the neighboring country. India wants to increase its participation in global value chains (GVCs). Therefore, it also needs to pay attention to the successes and strategies of the economies of East Asia. These economies have generally followed two main strategies. Reducing trade costs and facilitating foreign investment.

Take advantage of China+1 strategy
The review said that India has two options to benefit from the ‘China Plus One’ strategy. Either it joins China’s supply chain or promotes foreign direct investment from China. The Economic Survey presented in Parliament by Finance Minister Nirmala Sitharaman said, “Of these options, focusing on FDI from China appears to be more promising to increase India’s exports to the US, as East Asian economies did in the past.” Moreover, choosing FDI as a strategy to gain benefits from the ‘China Plus One’ approach appears to be more advantageous than relying on trade.

Walking trade deficit with China
The review says, “This is because China is India’s top import partner and the trade deficit with China is increasing. As the US and Europe are shifting their immediate supplies from China, it is more efficient for Chinese companies to invest in India and then export products to these markets, rather than importing from China, adding minimum value and then re-exporting them. It said that increased FDI inflows from China can help boost exports as well as increase India’s participation in the global supply chain. Currently, government approval is required for foreign direct investment from China in any sector.

Only $2.5 billion investment came in 24 years
China was ranked 22nd with a share of only 0.37 per cent (US$2.5 billion) in total foreign direct investment equity inflows in India during April 2000 to March 2024. When asked in this regard, Chief Economic Advisor (CEA) V Anant Nageswaran said that through this he is urging the Center to re-review the policy regarding FDI investment from China. He told reporters here, “I am demanding a re-review. I am saying that there is a need for a balance between importing goods and importing capital. I gave the example of what Brazil and Turkey have done. They banned import of vehicles, but then they encouraged them to invest in their country.” He said India has a huge trade deficit with China and if India continues to import, the trade deficit will keep growing.

At present, most of the investment comes through the automatic route

“It also means you are making yourself vulnerable. Select the sectors you can invest in, then you will also have a chance for Indian entrepreneurs to acquire technical knowledge and become self-reliant at a time,” Nageswaran said. Currently, most of the foreign investment coming into India comes through the automatic route. However, FDI coming from countries sharing land border with India requires mandatory government approval in any sector.