THE GROWTH FACTORIES

Modi’s vision of a 10 trillion economy has spurred policy shifts that aim to transform India into a global manufacturing powerhouse. But China’s dominance poses a challenge

- Anilesh S. Mahajan

The first Economic Survey of Modi 3.0 dropped a bombshell when it made a case for getting Foreign Direct Investment (FDI) from China to help India improve its participation in global supply chains through exports.

Even as Union commerce & industry minister Piyush Goyal quickly scotched speculations about easing Chinese capital inflows, the economic survey-tabled a day before the Union budget to provide an overview of the Indian economy's performance has set off a debate.

China is India's largest trade partner, with export/ import volumes exceeding $118 billion (Rs 9.9 lakh crore, at the current exchange rate) in 2023-24. But India's trade deficit with China is also the highest at $85 billion (Rs 7.14 lakh crore), not including Chinese products reaching its shores through free trade agreements (FTAs) with ASEAN countries.

This gap was less than a billion dollars at the turn of the century when China joined the World Trade Organization (WTO). Since then, China has transformed itself into a bustling "factory of the world", capitalising on lower environmental compliances, surplus and cheaper labour, as well as economies of scale. It was producing enough to flood global markets with much cheaper products, especially when other emerging economies like India and Brazil continued to struggle with their own reforms to open up to foreign capital.

In fact, the share of manufacturing in India's GDP declined from 15.93 per cent in 2001 to 13.35 per cent in 2022, despite the economy expanding by about a 6 per cent compound annual growth rate (CAGR).