In its annual Economic Survey report released on Monday, the office of the chief economic adviser outlined two paths for India: increasing imports from China or attracting more foreign direct investment (FDI) from the country.
India’s quest to become a global manufacturing hub hinges on attracting Chinese businesses to set up factories and boost exports, according to the nation’s top economic adviser. This strategy requires the government to ease its current restrictions on Chinese investments, a move that could significantly enhance India’s manufacturing sector.
In its annual Economic Survey report released on Monday, the office of the chief economic adviser outlined two paths for India: increasing imports from China or attracting more foreign direct investment (FDI) from the country. The latter is deemed more beneficial, given India’s substantial trade deficit with China. Encouraging Chinese investments would not only help reduce this deficit but also foster domestic technical expertise.
The deteriorating economic ties between India and China, following deadly border clashes in 2020, have led to stringent restrictions on Chinese businesses. Prime Minister Narendra Modi’s administration has imposed strict investment rules, banned numerous Chinese apps, and slowed visa approvals. Despite these measures, India continues to rely heavily on Chinese goods for its manufacturing needs, a dependency that conflicts with Modi’s vision of making India a manufacturing powerhouse, particularly in electronics.
The Economic Survey, authored by Chief Economic Adviser V Anantha Nageswaran, highlights that India faces two strategic choices: integrating into China’s supply chain or promoting FDI from China. The report argues that focusing on FDI from China is more promising for boosting India’s exports to markets like the US, following the successful model of East Asian economies.
With the US and Europe seeking to reduce their dependence on Chinese goods, India stands to benefit more from having Chinese companies invest locally and then export to these markets. This approach contrasts with the current practice of importing from China, adding minimal value, and re-exporting.
The survey draws lessons from emerging markets like Turkey and Brazil, which have raised import tariffs on Chinese electric vehicles while simultaneously attracting Chinese FDI into the sector. These measures are in response to concerns about excess capacity in Chinese factories, which pose a threat to local industries and employment.
“To bolster Indian manufacturing and integrate into the global supply chain, India must connect with China’s supply chain,” the report asserts. “Whether this integration occurs solely through imports or through a combination of imports and Chinese investments is a decision that India must make.”
Source: Business Today
