By being more welcoming of the Foreign Direct Investment from China instead of putting it under onerous scrutiny will help India better meet its ambition of greater share in the global value chains and higher exports, according to the Economic Survey presented in Parliament on Tuesday.
“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 said.
To curb opportunistic takeovers or acquisitions of Indian companies due to the COVID-19 pandemic, the government amended the FDI policy through Press Note 3 (2020) on April 17, 2020. Under this, a company of a country, sharing land border with India can invest only after the government’s approval. The border clash at Doklam in June of that year further impacted the business ties. FDI curbs were followed by a ban on 200 popular Chinese apps like Tiktok, Wechat, and Alibaba’s UC browser.
As of 2023-end Rs 1 trillion worth of FDI proposals from China were received after the issuance of Press Note 3 and half of which had been approved. The government also blocked the investment proposal of one of the top EV makers in the world BYD. Other Chinese companies like MG Motors and some electronics and smartphone makers had to take on Indian partners for their expansion in India.
Even with China plus one strategy the world cannot look past China, the survey said. The countries like Mexico, Vietnam, Taiwan and Korea that benefited from the move for diversification of supply chains also witnessed an increase in FDI from China. “Brazil and Turkey have raised barriers to imports of Chinese EVs, but enacted measures to attract Chinese FDI in the sector.” European nations, too, have decided to follow a similar approach, the survey quoted the Rhodium Group report to support its argument.
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.
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 (inputs) from China, adding minimal value, and then re-exporting them, the survey said.
Dependence on China for industrial products is increasing in the past few as India ramps up its manufacturing sector. Of the $ 101.8 billion imports from China in 2023-24,around $ 100 billion or 98.5% was in major industrial product categories. Around 30% of all industrial imports come from China. While bilateral trade between India and China is $ 118.4 billion the FDI from the northern neighbour has just been $ 2.5 billion between April 2000 and March 2024.