Going by what the Economic Survey has to say on trade and foreign investment from China, India seems to be softening its stance on economic relations with China despite the hostile history between the two countries.
The Economic Survey 2023-24 says that it is inevitable for India to plug itself into the global supply chain without increasing imports from China and also said that allowing foreign direct investment (FDI) from China could help boost India’s exports to the western nations. Interestingly, the word ‘China’ found a mention 132 times in the Survey, highest among all countries.
“Even though India is the fastest-growing G20 country and is now recording growth rates that outpace China’s, India’s economy is still a fraction of China’s,” the Survey said. “Against this background, it may not be the most prudent approach to think that India can take up the slack from China vacating certain spaces in manufacturing,” it added.
Trade deficit
Analysis of trade data shows that in FY24, India’s exports to China amounted to $16.6 billion while imports totalled $101.7 billion, leaving a trade deficit of $85 billion. This deficit increased from $83 billion in FY23 and $73 billion in FY22.
Data also show that as India increases exports of certain products to the US, it is relying on increased imports from China. In electronics, for instance, India’s exports to the US have moved from a trade deficit of $0.6 billion in FY17 to a trade surplus of $8.7 billion in FY24. But India’s imports from China is highest in the electronics and telecom products segment at 38 per cent.
In his media address, CEA Anantha Nageswaran said that most of India’s trade deficit with China is due to import of industrial goods, and the deficit will only increase as the West diverts trade away from China. As India looks to improve its manufacturing capacity, it will have to increase imports of capital goods and as of now, “we have no alternative choices to depend on, given China’s base of capital good manufacturing sector,” he added. He also cited the example of Brazil and Turkey that raised barriers to imports of Chinese EVs but attracted FDI in the sector.
Two choices
“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,” the Survey said.
Ajay Srivastava, Founder, Global Trade Research Initiative, says this will not be the best strategy for India considering evolving geopolitical situation.
“While Chinese companies investing in India and exporting to western markets might seem beneficial in the short term, it risks undermining India’s long-term economic security and strategic autonomy. Dependence on Chinese firms for key manufacturing capabilities could expose India to supply chain vulnerabilities and geopolitical risks,” he said.