Will India gain or lose from the China slowdown?
GS Paper 3: Macroeconomics, Issues related to planning, Growth, Development, Employment
Important for
Mains exam: Impact of global events on India
Context
Worries of a sustained slowdown in China as a result of its zero-covid strategy are troubling policymakers and trade experts worldwide and India is no exception to this. Due to ongoing Russia-Ukraine conflicts and fear of slowdown in china International crude oil prices have already declined.
Signals of slowdown in China
• In the time when all countries are raising lending rates, China’s central bank unexpectedly slashed rates after data showed economic activity slowed broadly last month including consumer spending and factory output.
o Major global economies such as the US and the UK are witnessing record inflation.
o The RBI has hiked repo rate to pre-covid-19 levels of 5.4%.
• Recent data shows that China’s retail sales and factory data witnessed a growth in recent times, but were far below market expectations.
o Retail sales grew by 2.7% in July from a year ago
o industrial production rose by 3.8% on a year-on-year basis.
• China’s trade dispute with the US and the declining trust in China-centric supply chains may further increase the problems for the country.
• China’s external footprint is also declining as Sri Lanka and Pakistan, the BRI partners, were facing an economic crisis with financial flow from China apparently reduced.
• The crackdown by the Chinese government on real estate, EdTech and Technology firms has affected the capital flow into these sectors.
How this impact India
• With a number of countries adopting a China plus one policy, China’s losses could be India’s gain.
China plus one policy
China-Plus-One, or just Plus One refers to a strategy in which companies avoid investing only in China and diversify their businesses to alternative destinations.
• Resetting of the global supply chain following the covid-19 pandemic has brought India to the fore.
o Developed countries are engaging with India to forge trade partnerships.
o A prolonged slowdown in China could help India leverage the opportunity by negotiating better deals with major developed economies.
o Australia’s worsening relationship with China pushed it to focus on India, and more developed countries have shown interest towards the same including Canada, the European Union and the United Kingdom.
• India could benefit from lower oil prices, which are facing a downward trajectory due to concerns of a demand slowdown.
o Crude eased below the $95 mark after economic data from China, the world’s largest crude importer, sparked global recessionary concerns.
o However, this may help lower India’s import bill and may support the rupee.
• China accounts for 5.04% of India’s total exports, demand slowdown there may further hit India’s total outbound shipments.
• A lot of raw material used in India’s manufacturing industry comes from China and supply side disruption due to China may also fuel further inflationary pressures in India.
Why india could be favourite destination for new businesses
• The Indian economy has pursued its economic reforms in an uninterrupted manner during the last decade including for improving the Ease of Doing Business.
• India’s emergence as an alternative to China is compelling because, in infrastructure, transportation, mass education, literacy, public health, e-commerce, work opportunities for women and skilled workforce, India is far ahead among its peers.
• India’s manufacturing sector has also grown faster in many sectors including chemical, pharmaceutical, plastic, textile, apparel, and steel.
• India is also trying to scale up in the value chain in newer and diverse areas, viz., mobile phones, semiconductors, medical devices and supplies, automobile parts, batteries,telecom equipment, food products, white goods defense production, electronics, solar panels, and toys etc.
o All of these are major areas of Chinese Manufacturing which appear to be in search of new locations in view of economic disruptions in China and rising labour cost.
• The crackdown by the Chinese government on real estate, EdTech and Technology firms has affected the capital flow into these sectors, which could be leveraged by India for diversifying manufacturing.
Way forward
• India must adopt an “aggressive approach” to attract multinational corporations to set up and expand their bases in the country.
o India can define a broad-based policy, which makes it attractive for a lot of these companies to come into India.
• India needs to diversify its import and export basket so that it can lower its reliance on China.
• India must focus on its sunrise sector to generate employment as well as attract foreign investment.[/fusion_text][/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]