Internal Policy Barriers Hurdle to Leveraging China-Plus-One opportunity

Syllabus: GS3/Economy

Context

• The 16th Finance Commission Chairman Arvind Panagariya said that India should remain open to investments from China as other developed countries, with the exception of a handful of sectors.

What is the China-Plus-One strategy?

• The China-Plus-One strategy refers to a business diversification approach where companies move manufacturing and sourcing operations outside China to reduce dependency and mitigate risks.
  • Countries like India, Vietnam, Thailand, and Malaysia are prime contenders for this shift. 
• It provides benefits like market diversification, technology transfer, and greater global supply chain participation.

Factors Responsible for India’s Limited Success in China-Plus-One

• Land Acquisition: Complex and time-consuming land acquisition processes discourage multinational investments.
• Labour Reforms: Despite progress, rigid labour laws hinder manufacturing competitiveness and scalability.
• Regulatory Bottlenecks: Although the GST has simplified taxation, excessive compliance requirements and bureaucratic delays raise operational costs.
• Limited Free Trade Agreements (FTAs): India’s cautious approach to FTAs has limited its participation in global value chains.
  • In contrast, countries such as Vietnam actively signed FTAs, offering smoother trade processes and competitive tariffs to global investors.

Policy recommendations 

• Free Trade Agreements: India must expand its FTAs to reduce cross-border tariffs and facilitate smoother participation in global supply chains.
• Embrace Chinese Investments: The Economic Survey 2023-24, too, had made a strong case for seeking foreign direct investments (FDI) from China to boost local manufacturing and tap the export market. 
• Land and Labour Reforms: Further streamlining policies will attract multinationals relocating from China.

Concluding remarks

• The NITI Aayog report highlighted that countries like Vietnam and Thailand have leveraged cheaper labour, simplified tax structures, and proactive trade agreements to attract global investments.
• Currently India stands at a critical juncture to seize China-Plus-One strategy. Proactive policy reforms will be key to realizing this potential.

Source: IE