Chinese FDI will fuel mfg growth, says NITI

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 -Arvind Virmani, member, NITI Aayog

New Delhi: NITI Aayog member Arvind Virmani on Sunday said it is better for India to get Chinese firms to invest and produce goods here to boost local manufacturing than to keep importing goods from the neighbouring country. Virmani was responding to a pitch made by the pre-budget Economic Survey on July 22 for seeking foreign direct investment (FDI) from China to boost local manufacturing and tap the export market.

“So, there is a trade-off the way an economist looks at it.So, the trade-off is that if there are going to be some imports, which we are anyway going to import for 10 years, 15 years from China, then it is better to get Chinese firms to invest in India and produce the same goods here,” he told in an interview.

As the US and Europe are shifting their immediate sourcing away from China, it is more effective to have Chinese companies invest in India and export the products to these markets rather than importing from the neighbouring country, according to the Economic Survey.

“So, in effect, we have to look at each good one at a time, you know, each category of good one at a time, and evaluate that trade-off,” the eminent economist added.

The survey noted that India faces two choices to benefit from the ‘China plus one strategy’ -- it can integrate into China’s supply chain or promote FDI from China. “It is the trade-off...instead of keeping on import from them (China). We should allow it,”Virmani opined.

“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. “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,” it has added. China stands at the 22nd position with only 0.37 per cent share ($2.5 billion) in the total FDI equity inflow reported in India from April 2000 to March 2024. The ties between the two countries nosedived significantly following the fierce clash in the Galwan Valley in June 2020 that marked the most serious military conflict between the two sides in decades.

The Indian and Chinese militaries have been locked in a stand-off since May 2020, and a full resolution of the border row has not yet been achieved, though the two sides have disengaged from several friction points.