How is India benefitting from the China+1 strategy?
Authored by Arun Chulani, Co-founder of First Water Capital Fund
It’s no secret that China, the ‘World’s factory’, has been the powerhouse when it comes to manufacturing for quite a while. However, with the pandemic-induced supply-chain disruptions, we have witnessed major economies look beyond China for their manufacturing requirements to diversify their supply chains This along with the growing geo-political tensions and trade wars has only enhanced this movement.
China’s current position poses a silver lining for India to further fuel its manufacturing ambitions through a more strategic lens. India is now on the cusp of monumental changes, with overall capacity-building measures deployed by the incumbent government. Thousands of Indian start-ups have been on a fast track to growth even across competitive industries owing to the favourable business environment.
Data released by the Ministry of Commerce and Industry revealed that India received USD 81.72 billion in Foreign Direct Investment during FY 20-21, which amounts to an additional 10 per cent compared to the previous year’s stats. This further substantiates the increasing support India is garnering as a potential alternative to diversifying supply chains from China. While India’s overdependence on China for imports had been a concern for years, this strategy is allowing India to expand its trade relationships with other countries like the United States, Saudi Arabia, Hong Kong, Indonesia, Singapore, and Kuwait. Additionally, India's exports have grown in terms of value and volume as per a report by the Global Trade Research Initiative.
A deeper dive into the benefits of China plus one strategy indicates the following highlights.
Increased Global Competitiveness
The stakes in finding a nation that is best equipped to propel the global economy have received more attention in recent years. Under these circumstances, India’s positioning as the country that can bridge the gaps between East and West holds solid ground. The sheer size of our nation, domestic demand and the potential offered by our young population support the country’s overall competitiveness in becoming a stronger and more developed economy.
Factories on the rise
‘China plus one’ has also provided a much-needed boost to India’s efforts in building the manufacturing sector. With the massive inrush of companies looking to set up manufacturing facilities in India, or investing in the growth of the sector, the country is experiencing an increase in production and exports. Companies such as Samsung, Foxconn, Wistron, and Apple have relocated part of their manufacturing operations to India in their efforts to diversify their supply chains. Here are some insights into some of the key industries in India making their mark-
- Steel- China’s efforts to reduce overcapacity in the steel sector have led to a reduction in Chinese steel exports. This has created opportunities for Indian companies like Tata Steel, JSW Steel, and Jindal Steel and Power to increase their production and exports.
- Textile- In June 2022, the US imposed a ban on cotton and cotton products originating from the Xinjiang region of China due to alleged human rights violations and forced labour practices in the region. With the unrelated event of the ‘China plus one’ policy, Indian companies like Welspun India, Vardhman Textiles, and Raymond, along with other homegrown brands have increased their exports and benefited across textile segments, ranging from readymade garments, cotton yarn and home textiles.
- Chemical- Over the last three decades, China has been the most dominant player in the global chemicals industry. Low labour costs and relaxed environmental norms may have led to this unparalleled success. In the current scenario, China’s efforts to reduce pollution and enforce environmental regulations have resulted in the closure of many chemical plants. This has created opportunities for other countries, including India, to emerge as strong players and re-establish their position in the chemicals space.
- Pharmaceuticals- India is the largest supplier of generic drugs globally, and the pharmaceutical sector has seen a boost in investment and exports as a result of the ‘China plus one’ strategy. Global pharma giants like Pfizer, Novartis, and Sanofi have expanded their manufacturing operations in India.
- Automotive- Our country is the fifth-largest producer of automobiles globally, with a production of 157 million units In December last year. India's low-cost manufacturing and skilled labour force make it an attractive destination for automotive manufacturing. Companies like General Motors, Ford, and Hyundai, are increasing their investment in India to diversify their supply chains. India is expected to rank as a leader in shared mobility by 2030, providing an estimated 5 crore job opportunities.
Changing Employment Patterns
Through government initiatives like ‘Make in India’ and ‘Startup India’, the government is also keen on helping the young population of the country to think differently and move away from the same old 9-5 mentality. Additionally, we’ve also seen many government incentives for specific sectors already reaping results. Home to much of India’s population, the workforce from rural areas is also looking for better opportunities in skill and service-oriented industries rather than resorting to manual labour.
China is a full-fledged superpower that has begun to show signs of maturing, whereas India is pushing the pedal to hasten its growth story. With global economies striving to strike a balance between globalisation and localisation, India finds itself in a sweet spot. The ‘China plus one’ policy has been a promising one that benefits countries including India by creating opportunities for diversification and growth in industries that were previously dominated by China. While only time will tell if India achieves its full potential, the opportunity is there and it is up to us to navigate the global headwinds and make the most of it.