‘India may gain from Chinese FDI’

• Chief Economic Adviser (CEA) V. Anantha Nageswaran has mooted that India may gain more by “replacing some well-chosen imports with investments from China” helping boost Indian manufacturing and plugging India into the global supply chain as it looks to benefit from advanced economies’ push to diversify past China via a ‘China plus one ‘sourcing approach.

Highlights:

• Writing in a chapter on the ‘Medium Term Outlook: A growth strategy for New India’ in the Economic Survey tabled in Parliament on Monday, the CEA appeared to tacitly endorse an industry plea to review restrictions on investment flows from China that had been announced by the Centre in 2020, ostensibly to protect Indian firms from opportunistic takeovers in the wake of the COVID-19 pandemic.
• Observing that the “dynamics of India-China economic relations continue to be extremely complex and intertwined” and that despite outpacing China’s growth rate, India’s economy was only “a fraction of China’s”, Mr. Nageswaran said India’s policy choices on economic ties with China offered no easy options.

‘Chinese conundrum’

• The CEA held that for India to benefit from the world’s China plus one strategy, it could consider either integrating into China’s supply chain or promote FDI from its neighbour. He argued that FDI from China appeared more advantageous than relying on imports in light of the widening bilateral trade deficit.
• “Replacing some well-chosen imports with investments from China raises the prospect of creating domestic know-how down the road. It may have other risks, but as with many other matters, we don’t live in a first-best world. We have to choose between second and third-best choices,” Mr. Nageswaran asserted.

Prelims Takeaway

• FDI