Economic Survey 2024: Inevitable that India plugs itself into China’s supply chain to boost domestic manufacturing

To enhance India’s manufacturing and integrate itself into the global supply chain, it is essential for India to become part of China’s supply chain, according to the Economic Survey 2024 tabled by the Union Finance Minister Nirmala Sitharaman in the parliament on Monday ahead of the Union Budget.

“To boost Indian manufacturing and plug India into the global supply chain, it is inevitable that India plugs itself into China's supply chain. Whether we do so by relying solely on imports or partially through Chinese investments is a choice that India has to make,” the Economic Survey said.

The document noted the extremely complex and intertwined dynamics of India-China economic relations and highlighted concern on the Chinese domination over the global supply chains, especially in the wake of supply disruption accompanying the war in Ukraine.

Meanwhile, it believes dealing with the Chinese manufacturing juggernaut will test the policy mettle of EMDEs. While EMDEs are resorting to import restrictions as a policy option to deal with the Chinese challenge, it is pertinent to note that some Chinese goods are so cheap that no amount of tariff can reduce their price competitiveness.

“Developing countries will have to figure out a way of meeting the import competition from China and, at the same time, boosting domestic manufacturing capabilities, sometimes with the collaboration of Chinese investment and technology,” the Economic Survey 2024 said.

A Rhodium group research points out, Brazil and Turkey recently raised tariffs on the import of E-Vehicles from China but, at the same time, took steps to attract Chinese FDI in the sector.

“India has a similar decision to make, given its large bilateral trade deficit with China. It makes India vulnerable to potential abrupt supply disruptions. 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,” the Survey document said.