09-December-2024-Special-Article

INDIA’S ROLE IN THE ‘CHINA PLUS ONE’ STRATEGY

The ‘China Plus One’ strategy reflects a global trend where companies aim to diversify their manufacturing and supply chains by establishing operations outside China. India, with its large market and economic potential, is seen as a promising destination for investments.

However, despite opportunities created by the US-China trade conflict and global supply chain disruptions, India has had limited success in leveraging this strategy.

Challenges Faced by India in Adopting the ‘China Plus One’ Strategy

Competitive Disadvantages and Regulatory Issues

• Competing nations like Vietnam, Thailand, and Malaysia attract investments with lower labor costs, simplified tax systems, and reduced tariffs.
• India faces challenges due to complex regulations, bureaucratic delays, and inconsistent policies, discouraging foreign companies.
• Corruption increases business costs and reduces investor trust, despite efforts to curb it.

Limited Free Trade Agreements (FTAs)

• South-East Asian countries have actively signed FTAs, increasing their export market shares.
• India’s slower approach in negotiating trade agreements puts it at a competitive disadvantage.

Geopolitical Challenges and Market Constraints

• India’s share in global trade remains low (less than 1% in 70% of global trade sectors).
• Geopolitical uncertainties, while offering opportunities, complicate trade planning and hinder India’s market expansion efforts.

Infrastructure and Supply Chain Barriers

• Poor infrastructure and inefficient logistics reduce India’s competitiveness compared to countries with well-functioning ports and transport systems.
• High logistics costs and delays in industrial projects further deter investment.

Environmental and Land Acquisition Issues

• The EU’s Carbon Border Adjustment Mechanism (CBAM) increases costs for India’s exports, especially in steel and iron.
• Slow and complex land acquisition processes inflate costs and delay business operations.

The China Plus One Strategy

Definition and Purpose

• The strategy encourages companies to reduce dependence on China by setting up manufacturing bases in alternate countries.
• It aims to safeguard businesses from risks like geopolitical tensions and supply chain disruptions.

Background

• China earned its reputation as the “World’s Factory” due to its low manufacturing costs and strong production ecosystem.
• The COVID-19 pandemic highlighted vulnerabilities in over-reliance on China, leading to supply chain issues and industrial shutdowns.

Emergence of China+1

• Challenges such as high freight costs, zero-COVID policies, and longer lead times encouraged global businesses to diversify operations to countries like India, Vietnam, and Bangladesh.

Opportunities for India

Demographic and Economic Strength

• With a population of 1.3 billion, a young workforce, and rising incomes, India offers a vast consumer base and labor market.
• India’s economy is projected to grow at 5-7% in 2024-25, highlighting its potential as a global trade hub.

Cost Competitiveness

• India benefits from lower manufacturing costs, with wages 47% lower than China’s.
• Infrastructure projects like the National Infrastructure Pipeline (NIP) aim to improve logistics and reduce costs.

Improving Business Environment

• Reforms like the Production Linked Incentive (PLI) scheme, relaxed FDI norms, and Make in India initiatives have made India more investment-friendly.

Strategic Trade Partnerships

• Agreements like the India-UAE Comprehensive Economic Partnership Agreement (CEPA) enhance trade, aiming to double bilateral trade in five years.
• Engagement in global forums like the QUAD, G20, and Shanghai Cooperation Organisation strengthens India’s economic ties and global influence.

Key Sectors Benefiting Under the China+1 Strategy

• Pharmaceuticals: India is the world’s third-largest producer of medicines, supplying 70% of WHO’s vaccine requirements at 33% lower costs than the US.
• Metals and Steel: India’s resource-rich environment and incentives like the PLI scheme for specialty steel make it a strong player in global steel markets.
• Information Technology (IT): With a focus on IT hardware manufacturing and government initiatives like Digital India, India continues to be a leader in IT services exports.

The Way Forward

• Structural Reforms: Simplify regulations, improve administrative efficiency, and lower logistics costs to enhance business competitiveness.
• Specialized Industrial Hubs: Develop manufacturing clusters with world-class infrastructure and ready-to-use facilities to attract industries.
• Skill Development: Strengthen vocational training and focus on STEM education to prepare a workforce for high-tech manufacturing.
• Boosting Manufacturing Sectors: Provide long-term tax incentives and develop sectors like mobile phones, defense, textiles, and pharmaceuticals.

Conclusion

India’s potential to emerge as a key player in the global supply chain under the ‘China Plus One’ strategy is significant but underutilized. With strategic investments, regulatory reforms, and a focus on innovation, India can overcome challenges and position itself as a viable alternative to China. The next steps require proactive measures to unlock growth opportunities and solidify India’s role in the global economy.

Mains question:

1. How does the inclusion of non-mineralized areas within mining leases impact the mining sector in India, and what are the legal and environmental implications of this move? (150 WORDS)