LIVE | What Economic Survey says on GDP, inflation, and more

Increased FDI inflows from China can help increase India’s global supply chain participation and push exports, says the Economic Survey.

The Survey said as India looks to deepen its involvement in global value chains (GVCs), it needs to look at the successes and strategies of East Asian economies.

These economies have typically pursued two main strategies — reducing trade costs and facilitating foreign investment.

It added that India faces two choices to benefit from “China plus one” strategy and that is either to 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.

Moreover, choosing FDI as a strategy to benefit from the China plus one approach appears more advantageous than relying on trade.

“This is because China is India’s top import partner, and the trade deficit with China has been growing. 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,” it added.

The survey explained how increased FDI inflows from China can help in increasing India’s global supply chain participation along with a push to exports.

At present, FDI from China in any sector needs government approval.

China stands at 22nd position with only 0.37 per cent share (USD 2.5 billion) in total FDI equity inflow reported in India during April 2000 to March 2024.

India’s GDP is likely to grow at 6.5 to 7 per cent in the current fiscal year amid global challenges which may impact exports, said the Economic Survey 2023-24 tabled in Parliament on Monday.

The growth projected for 2024-25 is lower than the economic growth rate of 8.2 per cent estimated for the previous financial year.

The Reserve Bank has projected the GDP growth for the fiscal year ending March 2025 at 7.2 per cent.

Global agencies like IMF and ADB see India to grow at 7 per cent.

“...the Survey conservatively projects a real GDP growth of 6.5–7 per cent, with risks evenly balanced, cognizant of the fact that the market expectations are on the higher side,” said the document tabled by Finance Minister Nirmala Sitharaman in Parliament.

It said the domestic growth drivers have supported economic growth in 2023-24 despite uncertain global economic performance. Improved balance sheets will help the private sector cater to strong investment demand.

The Survey also added a note of caution saying “private capital formation after good growth in the last three years may turn slightly more cautious because of fears of cheaper imports from countries that have excess capacity”.

While merchandise exports are likely to increase with improving growth prospects in advance economies, services exports are also likely to witness a further uptick.

A normal rainfall forecast by the IMD and the satisfactory spread of the southwest monsoon thus far are likely to improve the agriculture sector’s performance and support the revival of rural demand, it said.