Opinion | India cannot afford to lose plot while chasing Chinese investment

Of the many strategies to deepen India’s integration into the global value chain, the Indian Economic Survey 2023-24 says “it is inevitable that India plugs itself into China’s supply chain”. To do so, it argues that India must make a choice between relying solely on imported goods from China or attracting Chinese foreign direct investment (FDI).

The report, produced annually by India’s Ministry of Finance, favours the latter. Chinese FDI would help India kill two birds with one stone. It would help India address the growing bilateral trade deficit with China while at the same time enabling India to capitalise on the “China plus one” strategy, a strategy being effectively used by other developing economies.

However, the reasons India is seeking Chinese FDI are haphazard and show a lack of coherent economic reasoning. The Economic Survey suggests they stem from being economically submerged in the bilateral relationship with China while missing out on the benefits of “China plus one”. Indian policymakers seem to think they have no choice but to pursue Chinese FDI while leaving development of domestic technological capabilities as an afterthought.

A paucity of data means there is little to no evidence to indicate whether wholly owned Chinese subsidiaries are better than joint ventures with Indian firms. Drawing from global studies on the impact of firm ownership on technological transfers in host countries, policies could be directed to encourage joint ventures between Indian and Chinese firms with technological transfers as the fulcrum of such partnerships.

Transfers can be direct through means such as technological handovers, with know-how shared with little restrictions in study groups or corporate joint ventures. Alternatively, transfers can also be indirect wherein the very presence of Chinese firms within India’s borders could initiate the process of technological transfers.