Economic Survey 2023-24 advocates for increased FDI from China

Economic Sector on FDI: Despite ongoing tensions with China, the Economic Survey presented on Monday strongly advocated for attracting foreign direct investments (FDI) from China to enhance local manufacturing and tap into the export market.

As the US and Europe shift their immediate sourcing away from China, the Survey suggested it would be more effective for Chinese companies to invest in India and export products to these markets, rather than India importing from China.

India faces two strategic choices to benefit from the 'China plus one strategy': integrating into China's supply chain or promoting FDI from China. The Survey highlighted that focusing on FDI from China is more promising for boosting India's exports to the US, akin to strategies employed by East Asian economies in the past.

"Opting for FDI as a strategy to benefit from the China plus one approach appears more advantageous than relying on trade," the Survey stated. "This is especially relevant as China is India's top import partner, and the trade deficit with China has been growing."

Increased FDI inflows from China can help India enhance its participation in global supply chains and boost exports, the Survey explained. Historically, economies have pursued strategies to reduce trade costs and facilitate foreign investment.

While most FDI coming into India falls under the automatic approval route, investments from countries sharing land borders with India require mandatory government approval. From April 2000 to March 2024, China ranked 22nd with only 0.37 per cent share ($2.5 billion) in total FDI equity inflow reported in India.

Countries sharing land borders with India include China, Bangladesh, Pakistan, Bhutan, Nepal, Myanmar, and Afghanistan.

Indian and Chinese militaries have been in a stand-off since May 2020, and a full resolution of the border issue has not yet been achieved. Ties between the two countries significantly deteriorated following the clash in the Galwan Valley in June 2020.

India maintains that its relations with China cannot be normalised unless there is peace in the border areas. Following the tensions, India banned over 200 Chinese mobile apps, including TikTok, WeChat, and Alibaba's UC Browser, and rejected a major investment proposal from EV maker BYD.

However, the Competition Commission of India (CCI) recently approved JSW Group's proposed acquisition of a 38 per cent stake in MG Motor India Pvt Ltd, a wholly-owned subsidiary of Shanghai-headquartered SAIC Motor.

The Indian government is also looking to streamline processes for timely approval of visas for Chinese professionals and technicians needed by Indian industry to set up manufacturing capacity. Certain Indian industry players have faced challenges in securing visas for Chinese professionals essential for setting up machinery in factories.

Despite minimal FDI from China, bilateral trade between the two nations has grown significantly. China emerged as India's largest trading partner in 2023-24, with $118.4 billion in two-way commerce, surpassing the US. India's exports to China increased by 8.7 per cent to $16.67 billion, while imports from China rose by 3.24 per cent to $101.7 billion. The trade deficit widened to $85 billion from $83.2 billion in the previous fiscal year.

Key sectors showing healthy growth in exports to China included iron ore, cotton yarn/fabrics/made-ups, handloom, spices, fruits and vegetables, plastic, and linoleum.

According to the Commerce Ministry data, China was India's top trading partner from 2013-14 to 2017-18 and again in 2020-21. Prior to China, the UAE was India's largest trading partner, while the US held the position in 2021-22 and 2022-23.

(With PTI inputs)