India looks to tap China FDI to power up electronics exports
Vijay C Roy
New Delhi, July 22
The Economic Survey tabled in Parliament has stated that increased foreign direct investment inflows from China can help increase India’s global supply chain participation and boost its electronics exports globally. At present, FDI from China in any sector needs government approval.
Making companies invest in India to check imports
It’s more effective to get Chinese firms invest in India and then export the products… rather than importing from China, adding minimal value, and then re-exporting. Economic Survey
As the US and Europe seek to shift their sourcing away from China — even though trade between them leapfrogs every year — the Economic Survey is hoping to overturn the policy of the last four years by calling for Chinese companies to invest in India. Aware of its own burgeoning trade with China, that is heavily tilted in favour of Beijing and crossed $100 billion at last count, the survey hopes that Chinese investment will mitigate some of that imbalance. Basically, Indian exports to China still largely consist of natural resources and unfinished goods. “It’s 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,” it added.
Vital Count
8.2% India’s GDP growth in FY24 backed by domestic drivers
3.2% Global growth in 2023 amid geopolitical conflicts
0.7% Current account deficit in FY24, was 2% in FY23
3.7% Growth in remittances to India ($124 bn) in 2024
Rs 10.9L cr Raised in FY24, covering 29% of capital formation
4.9% Rise in services exports to $341 bn
18.7% External debt to GDP ratio at the end of March 2024
The survey states that India faces two choices to benefit from China plus one strategy: it can integrate into China’s supply chain or promote FDI from China. Among these 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. Chief Economic Adviser V Anantha Nageswaran in a press interaction added that two forces (India and China) can deepen trade deficits with China, namely the trade diversion by the West away from China. India’s industries will be placed as intermediate suppliers between China and the West (similar to Mexico and Vietnam). Secondly, drive for enhancing manufacturing capacity within the country. India needs to create nearly eight million jobs per annum. Moreover, choosing FDI as a strategy to benefit from the China plus one approach appears more advantageous than relying on trade.
Further, a recent research note from the Rhodium Group points out, “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.”
