FDI inflows from China can help push up India's exports

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.