Beijing: Amid tense relations with 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, as 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 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, “Among these options, focusing on FDI from China appears to be more promising to increase India's exports to the US, as done by East Asian economies 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.
Growing trade deficit with China
“This is because China is India's top import partner and the trade deficit with China is growing. As the US and Europe shift their immediate supply from China, it is more efficient for Chinese companies to invest in India and then export products to these markets rather than import from China, add minimal value and then re-export them,” the review says. It said increased FDI inflows from China could help boost exports as well as India's participation in global supply chains. Currently, foreign direct investment from China in any sector requires government approval.
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 asking for a re-review. I am saying that there is a need for balance between importing goods and importing capital. I gave the example of the work done by Brazil and Turkey. They banned the import of vehicles, but then they encouraged them to invest in their country.” He said that India has a big trade deficit with China and if India continues to import, the trade deficit will keep increasing.
Currently, most of the investment comes through automatic approval route
“It also means you are making yourself vulnerable. Select sectors where you can invest, then you will also have a chance for Indian entrepreneurs to acquire technical knowledge and become self-reliant at a point of 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.
