India’s Ambitious Strategy to Reduce Reliance on Chinese Supply Chains

India’s Ambitious Strategy to Reduce Reliance on Chinese Supply Chains

Ira Singh
31 Oct’23

In a significant move, India is actively working on a comprehensive plan to decrease its dependence on Chinese supply chains. The Niti Aayog will develop an action plan to reduce the trade deficit with China and safeguard the supply chains against geopolitical risks, according to information.

India is devising a strategy to decrease its reliance on China for supply chains. The task of formulating this plan has been assigned to the Niti Aayog, which will primarily focus on reducing the trade deficit with China over time and proposing measures to safeguard supply chains against risks arising from geopolitical developments, states an ET report.

A senior government official, who is well- informed about the matter, told ET that the Niti Aayog will develop an action plan that recommends policy interventions, such as tariff and non-tariff barriers, along with changes to the regulatory framework.

To aid in this process a consultancy firm will be engaged to review India-China trade,with the report expected to be completed within six months, according to sources.The official emphasized the need for focused intervention due to significant role China plays in India’s supply chains, particularly in certain sectors.The Covid- 19 pandemic and geopolitical conflicts have highlighted the dependence and vulnerability of Indian supply chains and production networks, making supply diversification essential.

The trade study conducted by the consultancy will analyze India’s dependency on China and identify the underlying reasons for it. Additionally,the study will examine product categories where India has a competitive advantage and a substantial market in China,with the aim of boosting exports to the country.Furthermore,the analysis will determine the type and amount of foreign investment needed to bridge technology gaps and explore the utilization of domestic manpower for competitive products.The study will provide the recommendations on the best approach to achieve these objectives.

According to the Niti Aayog, in the financial year 2022-23, China accounted for India’s highest trade deficit. India’s merchandise exports amounted to $450 billion, while imports reached $714 billion, resulting in a merchandise trade deficit of $263 billion. Approximately 32% or $83.1 billion of India’s trade deficit was with China.

India primarily imports capital goods ($47 billion in 2021), followed by intermediate goods ($30 billion), consumer goods ($9.4 billion), and raw materials ($1 billion) from China. On the other hand, India mainly exports intermediate goods ($11 billion) and raw materials ($6 billion) to China, along with consumer goods ($3.4 billion) and capital goods ($2.4 billion), according to reports. Experts have emphasized that any disruptions in these supply chains could have significant implications for local supplies.

India’s strategy to reduce its reliance on Chinese supply chains is a multifaceted and ambitious endeavor. If executed effectively, it has the potential to make India more self-reliant, resilient to external shocks, and a key player in global trade networks.